The Office of Fair Trading (OFT) has released a report that says many leading payday lenders have failed to meet the proper standards set for them.
This guide will explain what some payday lenders have been doing wrong and what the OFT wants them to do about it - plus your rights when it comes to payday lenders.
What has the OFT said?
The OFT has told the leading 50 payday lenders (who make up about 90% of the market) that they have 12 weeks to prove that they comply with OFT guidelines. If they don't by the end of this time, they risk losing their licences.
What have the payday lenders been doing wrong?
The OFT identified a number of concerns, including:
- Lending to people - or rolling over loans - without fully looking at whether the borrower could actually afford to pay it back.
- Not properly explaining how payments will be collected
- Being aggressive when collecting debts
- Not being patient and understanding with borrowers in financial difficulty
Why have payday lenders been doing this?
According to the OFT, the competitive nature of the payday loans market is the cause of many of these problems.
Lenders have been competing against each other by advertising how quick and easy it is to access their loans - rather than encouraging customers to look at the price.
The OFT says that the lenders have not been doing proper affordability checks on potential customers - because if they turn a customer away, the customer will just go to one of the lender's competitors. That means that too many people are given loans that they can't afford to repay.
Around half of payday lenders' revenue comes from loans that have 'rolled over' or been refinanced - meaning that they last longer than the initial month. This may lead to lenders being more willing to let a customer refinance - without properly checking whether they can afford to.
What are your rights when it comes to payday lenders?
The OFT has made it clear that consumers have rights when it comes to payday lenders.
For example, if you have a complaint about a payday lender, you should approach them first and see whether they can resolve the issue. If you're unhappy with the payday lender's response, you can take your complaint to the Financial Ombudsman Service.
If you're struggling to repay your debts, you should contact the Citizen's Advice Bureau for advice as soon as possible.