07/03/2012

Report Calls For Tighter Controls On Payday Loans

A report has recommended that lenders of payday loans should be forced to limit loans being ‘rolled-over’, stop letting customers switch lenders and to share customer information with other lenders.

The report describes the payday lending and debt management industry as ‘opaque and poorly regulated’ and said the government should commit to a timetable for deciding whether control of consumer credit should be transferred from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA), a new regulator replacing the Financial Services Authority.

Payday lenders offer people short-term loans usually up to a maximum of £1,000, but loans come with high interest rates and charges, some APR’s can reach as much as 16,000%. Accusations of targeting low-income borrowers, who’s loans often end up being rolled-over incurring more charges and larger debts, have been levelled against lenders.

Adrian Bailey MP, chairman of the business, innovation and skills committee behind the report, said: "During these difficult economic times, increasing numbers of people up and down the country – not least some of the most vulnerable members of our society – are relying on the provision of consumer debt management services and payday loans to make ends meet.

"And yet this industry remains opaque and poorly regulated. Despite a government consultation that ended almost a year ago, little has been done to remedy the situation."

The OFT has expressed frustration in the process of regulating credit companies. It has said that from the point of deciding to revoke a company’s license it can then take years to get through the appeal process, during which the company is free to continue business. For businesses that have not adhered to the rules, the committee has said a fast-track procedure is needed to suspend licenses.

Sarah Brooks, director of financial services at Consumer Focus said: "The payday loan industry has had the chance to put its own house in order but has failed to stamp down on irresponsible lending. In the meantime, consumers, often those on the lowest incomes, are losing out.

We would urge the government to take account of these sensible, proportionate and considered recommendations and ensure that they are introduced quickly."

(H)

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