OFT to decide on payday firms probe


The trading watchdog will announce next Thursday whether it plans to refer payday lenders for a full-blown investigation by the Competition Commission.

The Office of Fair Trading (OFT) previously uncovered evidence of ''widespread irresponsible lending'' and gave the 50 biggest players in the market a 12-week deadline to prove they were up to scratch or risk being put out of business.
The watchdog published a damning report into the sector in March, and said at the time that it was minded to refer the industry to the Commission, which has strong powers to ban or limit products and shake up whole markets.

The OFT's report was the culmination of a large-scale probe into the £2 billion payday sector, including spot checks on household names such as Wonga. Information placed on the OFT's website on Friday said that the body had received 20 responses to its provisional decision to refer the payday market to the Commission.
The OFT said: "We are analysing these responses and will publish our decision on whether or not to refer the payday lending market to the Competition Commission on Thursday 27 June."

The trading watchdog found ''deep-rooted'' problems such as lenders encouraging customers to roll over expensive loans and sink further into debt. It said the issues raised were industry-wide, causing ''misery and hardship'' for borrowers. Language used by lenders such as ''Instant cash'', ''Loan guaranteed,'' and ''No questions asked",' could either be misleading or, if true, were a sign of irresponsible lending, the OFT warned.

It said that payday lenders appeared heavily reliant on struggling customers who are in a "weak bargaining position" and cannot afford to pay their loans back on time. It found that around half of lenders' revenues come from loans which had been rolled over or refinanced.

Wonga has previously said that only a small proportion of its loans are extended and they do not provide "anything like" the revenues described for the whole industry by the OFT. It has described itself as being "instrumental" in helping to raise industry standards.

Of the 50 lenders that the OFT contacted, two have surrendered their licence and one has told the watchdog that it is leaving the payday market. Lenders have been written to in waves, which is continuing to analyse responses and said that any further action will be announced in due course.

If the OFT still has concerns that payday lenders are not compliant, it can take steps to remove their licences, which they need in order to trade, or stop them in their tracks by suspending their licences immediately if consumers are at imminent risk of harm. The watchdog has also opened formal investigations into three un-named lenders.

© 2013 Press Association
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