The pay-day loans industry has come under heavy criticism in the Office of Fair Trading’s final compliance review for “widespread irresponsible lending”. Yesterday the OFT gave 50 pay-day lenders, who make up about 90% of the market, 12 weeks to either radically change their practices or have their licences removed. The OFT also announced plans to propose that the pay-day loans market be reported to the Competition Commission. They did not name specific companies, but declared that the issues are ‘deep-rooted’ across the sector. The OFT called the issue a ‘top…priority’ and the findings will force the loan companies to take swift action to prove that they are compliant with regulations or risk ‘enforcement action’. Pay-day loan companies often target financially vulnerable people who have been refused other forms of credit, and charge high rates of interest, sometimes forcing borrowers to take out more loans to pay off their original one.
Clive Maxwell, chief executive of the OFT, said, ‘we have found fundamental problems with the way the pay-day market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers’. Russell Hamblin-Boone, chief executive of the Consumer Finance Association, responded to these criticisms by saying ‘We recognise there are concerns about the industry. However, these reports are a snapshot in time, and work is already underway’.