The payday loans industry in the UK is estimated to be worth about £1 billion and it has recently become the subject of inquiry as to whether it is aggravating the personal debt crisis that is occurring in the country.
The OFT has recently started the inquiry after becoming concerned that some businesses are offering short-term loans, without adequately checking the ability of the customer to pay back the money. The OFT is going to specifically look at companies which encourage people to take out loans for their services.
It is going to be looking at high interest, short-term, loan providers such as QuickQuid and Wonga.com. There are also rumours in the industry that those who get into debt with these companies and are unable to make repayments are then bullied by the companies and subjected to treatment which is seen as being far too heavy-handed.
These companies make it very easy for people to borrow loans without having any sort of background check. In many cases it is even possible to borrow money through a simple text message. The interest rates on these types of loan are enormous, and in some cases the APR can be around 3000 percent.
The OFT is also going to be looking into the way that these loans are advertised to people, as they think that the company promoting loans to pay for plastic surgery or clothing is not acceptable.
The OFT have recently issued a statement which says, “We are warning these companies that if they are found to be guilty of lending irresponsibly, they could have their licences to give credit completely removed. This essentially means that they will be unable to continue trading.”
The cost of living is at its highest level for the past 60 years and these payday loan companies are taking advantage of this. The number of applications in recent years has gone up significantly as many people are turning to the high interest loans in order to pay for purchases they cannot afford, or meet bill payments they would otherwise miss.
As part of its investigation the OFT are going to be looking at over 50 of the major short-term lenders. David Fisher, the director of credit at the OFT has stated, “These loan companies might be taking advantage of people who are facing financial difficulties. It is possible they are in breach of legislation including the Consumer Credit Act and that they are also not meeting guidance for the industry about responsible lending.”
Loans are often given to applicants within moments which shows that these companies are not running adequate credit checks on their customers. Mr Fisher continued, “This is a completely unacceptable practice and we are going to demand that standards in the industry are improved, otherwise action will be taken against these irresponsible lenders.”
The Money Advice Trust is headed by Joanna Elson and she has backed the investigation saying, “These payday loans are seen as a quick fix but they have a serious tendency to make a person’s debt situation significantly worse.
“It is regularly reported that people phoning the government’s debt helpline are being harassed by these companies when they come to collect debts. They are taking enormous profits by demanding immediate settlement and refusing to listen to people’s suggestions of payment plans to pay off what they owe.”
Consumer Focus, the official customer body has supported the investigation stating, “We are very glad to see that this sector of the market is finally being investigated. Our own research has shown that these lenders are offering loans to people who are unable to pay them back.”