OFT forces 14 payday lenders out of business
Fourteen payday lenders have withdrawn from the controversial short-term loans market in response to an Office of Fair Trading deadline for the sector to clean up its act.
The OFT wrote to the 50 leading payday loans companies (accounting for 90% of the market) in April 2013, giving them 12 weeks to improve their lending practices or risk being closed down - a deadline that has just passed.
Of the 14 lenders that gave up their licences voluntarily, three have chosen to exit the credit industry altogether.
The OFT also reported that one company had been forced out of business as a result of failing to respond in time to the ultimatum.
The Consumer Finance Association (CFA), which represents larger payday lenders that account for around 60% of the market, confirmed to Moneywise that none of its members were among those who had withdrawn from or been forced out of the market.
Russell Hamblin-Boone, CFA chief executive, said: “We have consistently called for those lenders who don’t, won’t or simply can’t meet the standards set by responsible payday lenders, to either shape up or ship out. It seems that 14 lenders have done just that, which is good news for borrowers and extremely positive for the payday industry which has been working hard in partnership with the government and regulator to drive out poor practice. All CFA members have responded positively to the OFT and await its response.”
At the time of its April review of the controversial short-term loans industry - where APRs can be as high as 5,500% - the OFT said it had uncovered evidence of "widespread irresponsible lending" and a failure to comply to required standards.
The review into the £2 billion industry found a host of problems, including aggressive debt collection practices, a failure to explain how payments will be collected and lenders failing to conduct adequate assessments of the borrower before lending.
A June 2013 Moneywise investigation into the payday loans market found that one website had been using photographs of famous and recognisable faces alongside endorsements of its services. These include BBC online "dragon" Julie Meyer, US comedian Rosie O'Donnell and, in one instance, the photograph of a 24-year-old woman killed in the Aurora cinema shooting.
Short-term cash loans designed to be borrowed mid-way through the month to tide the borrower over until they next get paid, whereupon the loan is settled. Generally used by people with bad credit ratings and/or no access to short-term credit such as an overdraft or credit card. Like logbook loans, this type of borrowing is hugely expensive: the average APR on payday loans is well over 1,000% and in some instances can be considerably more.