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OFT launches review into payday lending

Simon Ward
by Lovemoney Staff Simon Ward on 24 February 2012  |  Comments 4 comments

The Office of Fair Trading says it now has a number of concerns about this booming sector.

OFT launches review into payday lending

The Office of Fair Trading (OFT) has announced that it is to review the payday lending sector.

Payday lending has expanded enormously since the credit crunch as people have found it harder to borrow money from banks and other established lenders.

The big brands in the sector, such as Wonga  and the Money Shop, have spent huge sums on major advertising and branding campaigns.

However, there are concerns that some payday lenders do not carry out thorough affordability checks and that borrowers are being allowed to roll over debts many times, meaning their debt snowballs.

The OFT says it is to focus on the following areas of concern during its review:

  • Loans offered without first checking adequately that the borrower can repay them
  • Inappropriate targeting of particular groups of people with clearly unsuitable or unaffordable credit
  • The ‘rolling over’ of loans so that charges escalate and the loans become unaffordable
  • Not treating borrowers that get into financial difficulties fairly

The OFT will carry out on-site inspections of 50 major payday lenders and carry out surveys with industry and consumer organisations.

It says it has already reviewed 50 payday lenders’ websites and written to the main trade bodies outlining areas where it believes advertising standards need to improve.

We’ve seen, or been shown examples of, payday lending advertising targeting everyone from students to pet owners to romantics wanting to splash out on Valentine’s Day.

A recent report by accountants PwC forecast that payday lending would soon overtake credit cards as a mainstream form of borrowing.

More: Why credit cards are better than payday loans | Charity ends schools education partnership with payday loans company

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Comments (4)

  • driver67
    Love rating 22
    driver67 said

    These people are little short of being criminals. The proliferation and High Street position suggests only one thing; there's money in it!!! I was staggered at the APR when I saw one recently advertised on TV. (Ah! Now who pays for the ad?)

    To get a sensible loan if you are up the creek I would suggest visiting a credit union.

    Report on 24 February 2012  |  Love thisLove  1 love
  • Mike10613
    Love rating 600
    Mike10613 said

    The Advertising Standards Authority should look at television adverts for loan sharks too. They all hot air and nothing doing. They are appointed by politicians on obscene salaries and they are just talking shops. Regulation? What regulation? The country is a mess because of lack of regulation and policing not because of too much. They think too much about more regulation for benefit claimants and not enough about regulation for their mates in Westminster. That's why we get obscene bank bonuses, phone hacking, bribery and corruption in policing and a 'Big Society' that stinks.

    Report on 24 February 2012  |  Love thisLove  0 loves
  • Hard Working Tax Payer
    Love rating 0
    Hard Working Tax Payer said

    UK does require regulations and guidelines, unfortunately they are not reviewed regularly and become out of date very quickly. With the increase in anti-social behaviour policed regulations are vital. The tax payer has become more and more despondent, inflation has increased outgoings - petrol costs, food, insurance premiums, etc ..... however salaries have not increased in line to cover the additional cost of living. The tax payer has had to cut down in every area to survive, in some cases not be able to afford dentist treatment, opticians, medication. I have every empathy for the hard working person who has been made redundant and unable to get another job in the current climate. However the tax payer is fed up with financing those in society who are choosing to live of benefits (ie the Tax Payer) instead of contributing to society. So along with other regulations I am afraid it is vitally important that the out of date benefit system is reviewed to stop the abuse. The benefit system was only ever supposed to be an interim measure, not a choice of life style living off the tax payer! Getting something for nothing is just not acceptable - rent paid, income support, free medical prescriptions & dentist treatments, free house insulation, etc ...... - it is not free as the tax payer has to fund it whilst they can not afford to pay for these things. I do not feel sorry for the benefit claimants at all, just cut down on things just like the hard working tax payer has had to!

    Report on 24 February 2012  |  Love thisLove  0 loves
  • easygoing
    Love rating 157
    easygoing said

    Oh dear Hard Working Tax Payer, it was going so well until you got to the end. As I see it you are suggesting that all benefit claimants are scroungers. If that is how you feel then you are making a terrible mistake. As a previously hard working taxpayer myself I never had any regrets about paying my tax and even in retirement I am still paying my fair share.

    If you have a benefit system to help those in trouble then you have the option to make it tight or fair. You can make it so tight that there will be deserving cases who are refused help. If you loosen the system to incorporate those cases then you give some people the opportunity to take advantage.

    It is understandable that there is a crackdown on cheats and fraud at this time but unfortunately forcing people off benefits when there is massive unemployment is going to be futile.

    I have been lucky in my life but I know people who have been really tested of late. I do not begrudge them their help. Nor do I begrudge the help that pensioners get for those of my age and older lived in a time when pensions for most workers were not even offered or encouraged.

    This will all take time to level out and trying to deny history will not help. A culture has been allowed to develop in this country and it will not change overnight without the conditions being in place to allow it.

    Report on 24 February 2012  |  Love thisLove  0 loves

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