Payday lending bosses have shrugged off a grilling by MPs over loan rollovers and dodgy lending practices, claiming they do everything they can to lessen customers’ debt burden.
Members of the Business Select Committee today quizzed lenders, consumer groups, regulators and a government minister in a one-off session about the controversial industry, which is estimated to be worth nearly £3bn a year.
The Financial Conduct Authority (FCA) watchdog has proposed a limit of two extensions of payday loans if borrowers choose not to repay, meanwhile the OFT has claimed that one rollover is a sign that a borrower is in difficulty.
But bosses of the top three lenders – Wonga, QuickQuid and Mr Lender – maintained that rollovers were suitable in some cases. And the Consumer Credit Trade Association, a trade body, challenged the idea that complaints were rising and said there had only been 36 complaints so far this year.
Responding to criticism about the suitability of many loan applicants, Wonga and Mr Lender said that only 2-3% of loans were made to people who then hit financial difficulties.
Wonga head of regulatory and legal affairs Henry Raine claimed that affordability checks compared favourably with credit card companies and banks. He stressed: “We aim to lend to people who can pay us back. We do everything we can to lessen the load of bad debt.”
According to Raine, Wonga’s average loan is £176 for 17 days, and customers receive a variety of reminders in the final days to avoid having to extend their loans.
Meanwhile, Mr Lender boss Adam Freeman said his company conducted strict affordability checks. It offered a loan to one in 100 applications, but forwarded some others on to credit brokers. “Just because someone rolls over a loan does not mean that they are in financial difficulty,” he said.
But Richard Lloyd, director of the consumer association Which?, took issue with the claims. He said: “It is just not credible to say that lenders are acting responsibly to allow people to roll over their loans.”
He added that the fees and charges linked to rollovers was what put people in financial difficulty, and that a two rollover limit was a “good place to start”.
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