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MPs criticise ‘timid’ regulation of pay day lenders




A group of MPs has hit out against the Office of Fair Trading, criticising its “timid” approach to the regulation of payday lenders.

In an investigation of the UK’s consumer credit market, the public accounts committee say the regulator has never fined any of the 72,000 firms with consumer credit licences, which includes payday lenders, suggesting a ”timid rather than tough [approach] in its enforcement”.

Unscrupulous behaviour from firms in the sector is estimated to cost consumers at least £450m a year, at a time when the OFT is accused of failing to proactively identify risks of malpractice.

The committee found that between 2011 and 2012, the OFT spent £11.5m regulating the entire consumer credit market, which lent £176bn to consumers or £1 for every £15,300.

Between 2004 and 2010 payday lending levels increased nearly 20 fold from £100m to £1.9 billion, and the number of customers using these loans is approaching 2 million.

Although the investigation found evidence of consumer credit licences having been revoked, the occurrences were limited and capable of taking as long as two years to achieve. The current system of revoking licences also fails to prevent “phoenixing” whereby firms set up new firms under a different name in order to re-obtain a licence.

The report says the OFT does not has a sufficient understanding of the sector and is overly reliant on complaints from consumers and information from third parties.

The report says: “The OFT lacks basic information about the consumer credit market, such as the amount of lending by each firm, the products sold by each firm and the types of consumers buying the products.

“It has not attempted to quantify the level of harm due to firms not complying with the Consumer Credit Act. This basic information, broken down by types of consumers and types of products, is essential if the regulator is to better understand the market and target its resources in the most effective way to protect customers.”

The committee says the OFT could have improved its standing as a regulator if it had raised the fees it charges for a licence, which are currently “ridiculously low and unrelated to the size of the business.”

The OFT recently  published guidance on when and how it intends to use the power to suspend consumer credit licences, which will apply to businesses found to have engaged in practices that cause, or have the potential to cause, physical, economic or other harm to consumers.

The OFT has also published a report into payday lending which highlights “widespread” and “irresponsible” behaviour by the largest 50 payday lenders and given them a deadline of the end of May to show improvement.

Since the compliance review was started, two payday lenders have surrendered their licences, three have had their licences revoked and formal investigations into the practices of three more have begun. The regulator says it will make a decision on whether to refer the UK’s payday market to the Competition Commission in June.

The committee says it has been encouraged by the OFT’s recent actions and hopes it marks “the start of a genuine step up from the timid approach.”

Trade association the Consumer Finance Association recently established an independent supervisory body for payday lenders with the power to sanction lenders for non-compliance.

Brokers were quick to dismiss the body as “toothless” however, since it did not address lenders’ abilities to operate outside of the trade association.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. david w bannon 31st May 2013 at 3:37 pm

    worked in this industry for 15 years and I can say I witnessed things that the merchant of venice would have loved to have charged the pound of flesh that these organisation charge.
    the government criticises the rates that the incumbent banks charge but has done nothing to these organisations that charge 4000% and we live in a state that is supposed to be caring.
    at one stage benefit books were taken of clients to ensure that these loans were paid. the office of fair trading didn’t put them out of business in northern Ireland another organisation did and they at one stage were not even spoken to by the british government.
    maybe the consumer credit licences should be removed totally and let these people use credit unions and banks, society will always have people who default, but then again so have the banks and look who stepped in to help them, and they decided to use our money to do so.

  2. The treatment of different sections of financial services by the poweres that be astounds me at times.

  3. Julian Stevens 1st June 2013 at 11:13 am

    Anyone so desperate for money that they’re prepared to borrow it at APR’s inxs of 4,000% almost certainly isn’t going to be able to afford to repay it. In such circumstances, financial disaster must surely be a virtually foregone conclusion.

    If the OFT (or whichever body creates the framework within which it has to operate) can’t see this and the need to impose ruthlessly robust regulatory measures to prevent the all but criminal exploitation of financially vulnerable people, then the system is an impotent farce. If ever there was an environment in which the regulator should shoot first and ask questions later, then this surely must be it.

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