Competition Inquiry For Payday Loan Industry

The Office of Fair Trading (OFT) has referred the payday lending industry to the Competition Commission over concerns it has about "deep-rooted problems" with the way competition works.

It said customers found it difficult to identify or compare the full cost of payday loans, and that there were barriers to switching between lenders when loans were "rolled over".

The OFT also voiced concerns that lenders are competing primarily on the availability and speed of loan approval, rather than price. It suggested the competitive pressure to approve loans quickly may "give firms an incentive to skimp on the affordability assessment which is designed to prevent irresponsible lending and protect consumers."

In addition, the agency said that some of the business models of companies operating in the industry were causing concern, because they were "predicated on making loans which are unaffordable, leading to borrowers paying far more than expected through rollovers, additional interest and other charges".

It added that lenders appeared to make up to 50% of their revenues from such practices.

The OFT concluded that the Competition Commission is best placed to investigate and help resolve the "fundamental problems" it had identified within the market, saying the work of the Commission would be able to provide the Financial Conduct Authority (FCA) with a "sound evidential basis on which to develop its rules and apply its new powers after it takes over responsibility for regulating the payday market from April 2014."

The FCA's powers will include the ability to place a possible cap on interest rates and a ban or limit on the number of rollovers lenders may offer. The Commission can also impose remedies itself, including banning or limiting particular features of a product or market.


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