© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
March 5, 2013 8:31 pm
Payday lenders are expected to face heavy criticism and the threat of fines from the Office of Fair Trading as part of a comprehensive attempt by regulators and the government to clamp down on the sector.
The OFT is expected on Wednesday to announce the results of a review of the sector amid growing pressure for tougher regulation as complaints rise from people struggling to cope with crippling levels of debt.
Aides and government officials said on Tuesday night they expected the regulator to be damning of the industry and to announce enforcement measures.
The government is also planning to clamp down on payday loan advertising, forcing companies such as Wonga and Payday UK to include “wealth warnings”, limit the times they advertise and display their interest rates.
Jo Swinson, the consumer minister, said the government was determined that vulnerable people in financial straits were “not taken advantage of or harmed”.
At the same time, the Financial Conduct Authority, the new consumer protection regulator, is expected to announce its plan for regulating the sector.
It inherits responsibility for supervising more than 50,000 lenders previously overseen but not actively regulated by the OFT.
It is expected to focus its attention on the small but fast-growing sub-sector of payday lenders, which are often accused of abusing vulnerable customers by charging very high interest rates. Many borrowers who take out a short-term, high-interest loan are unable to pay back the original debt and are forced to borrow more money to meet the cost.
Stella Creasy, a Labour backbencher who has campaigned for a clampdown, said the government needed to go further and cap the amount companies can charge.
“Legal loan sharks are out of control in Britain,” she told the FT, adding that the announcements on credit checking and advertising ducked the “real issue” of capping charges.
The Office of Fair Trading began its review of the industry in February 2012, and announced in an interim report nine months later that most of the large companies it inspected were not operating fully by the rules.
Lenders say they expect the final report to criticise most in the industry for poor practices such as failing to check whether consumers can afford loans and permitting borrowers to roll over loans, increasing the size of their debts.
Charities and consumer rights groups have reported a significant rise in the number of borrowers experiencing severe problems because of short term borrowing. Both Citizens Advice and Money Advice Trust reported a recent increase in calls from borrowers in financial trouble.
The UK’s largest payday lenders, including Wonga and Payday UK, say they are committed to reducing the number of loans made to customers who cannot repay them.
The largest payday loan trade associations, which have been working to present a more respectable and professional image for the industry, announced last July they had agreed a “Good Practice Charter” that would ensure affordability assessments and promised to freeze interest and charges if a customer were in difficulty.
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in