20 Nov 2012

OFT clamps down on payday lenders

The OFT launches investigations into several payday lenders over “aggressive debt collection practices” and warns others they risk enforcement action if standards do not improve.

The Office of Fair Trading said it had found evidence of aggressive tactics used by certain lenders that were “so serious” it needed to take action.

It also said that it will be writing to all 240 payday lenders to highlight its concerns over poor practices in the sector. The concerns were around:

  • the adequacy of checks as to whether loans will be affordable for borrowers
  • the proportion of loans that are not repaid on time
  • the frequency with which lenders “roll-over” or refinance loans
  • the lack of forbearance shown by some lenders when borrowers get into financial difficulty
  • debt collection practices

In evidence sent to the OFT, the Consumer Credit Counselling Service (CCCS) said that the number of people with payday loans who contacted it for advice had risen six-fold between January 2009 and December 2011. In 2011 the service helped 17,414 people with 40,053 separate payday loans – approximately 9 per cent of the total.

You just keep leap-frogging to pay off, pay off, pay off – Andy, payday loan borrower

It also said that it had seen evidence of “unfair treatment” of consumers across a range of practices, including excessive charges, misrepresentation of legal powers when collecting debt, communication that constitutes harassment and refusing to deal with third parties (such as the CCCS).


One user of payday loans, who asked to remain anonymous, and who has ended up taking out 80 loans, told Channel 4 News that after being able to repay one loan he went to another company.

“I was clear that I owed money to someone else,” he said. “They didn’t seem interested in that. They were interested in lending me money. It wasn’t difficult at all – it was quite easy.”

Another payday consumer, Andy, said the majority of his salary would be spent repaying loans.

“You needed money to live on, to keep a roof over your head for food and fuel. So you have to get more loans to live on for that month and then you leap-frog again. You just keep leap-frogging to pay off, pay off, pay off – until you hold your hands up and say ‘right, you’ve got to stop’.”

Payday loans: what do you do if you're struggling to pay back debt?

The OFT has investigated 50 payday lenders, accounting for the majority of payday loans, and said it expects to warn all of them that enforcement action will be taken if they do not improve specific practices and procedures. These lenders will be required to provide independent audits to show that they comply with legal obligations and expected standards.

‘Need to improve’

David Fisher, OFT director of consumer credit, said: “We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them. It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action.

“Our report shows that a large number of payday loans are not repaid on time. I would urge anyone thinking about taking out a payday loan to make sure they fully understand the costs involved so they can be sure they can afford to repay it.”

On top of the investigations, the OFT has also looked at 686 consumer complaints, conducted a mystery shopper exercise with 156 online and high street lenders, and has received 1,036 responses to a survey of businesses, trade associations and consumer bodies. A full report will be published by the OFT in the New Year.

‘Responsible borrowing’

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents short term lenders, told Channel 4 News the organisation was working with the government and credit agencies to improve the system of credit checks.

However, he added there needs to be “responsible borrowing” as well as “responsible lending”, and said there is “no business sense” in lending to someone who will not pay you back.

Below, watch an extract of his interview with Business Correspondent Sarah Smith, ahead of tonight’s Channel 4 News at 7.00pm. If you have something to say about payday lending, tweet @Channel4News.