The OFT has launched an inquiry into the £1bn payday loans industry – dominated by online firms such as Wonga, QuickQuid and Kwik Cash, backed by huge marketing budgets – after fears it is fuelling a personal debt crisis.
Payday loans have been one of the fastest growing financial services sectors in recent years, with some businesses charging an APR interest rate of as much as 3,000%.
The review will involve on-site inspections of 50 major payday lenders and surveys of industry and consumer organisations. Leading up to the review, the OFT has conducted a sweep of over 50 payday lending websites and written to the main trade bodies outlining areas where it considers advertising standards need to be improved.
In 2010, the OFT conducted a similar compliance review of the debt management sector which resulted in 43 companies surrendering their licences and enforcement action against a further 13 businesses to revoke their licences.
OFT director of consumer credit David Fisher said: “We are concerned that some payday lenders are taking advantage of people in financial difficulty, in breach of the Consumer Credit Act and not meeting the standards set out in our guidance on irresponsible lending. This is unacceptable. We will work with the trade bodies to drive up standards but will also not hesitate to take enforcement action, including revoking firms’ licences to operate where necessary.
“The payday sector has grown considerably since the OFT’s high cost credit review in 2010. This, combined with the current tough economic conditions makes it the right time for us to review the industry and improve protection for consumers.”’
Consumer Affairs Minister Norman Lamb added: “The OFT is right to launch a compliance review of its guidance in the payday lending market to make sure that companies are adhering to agreed standards and in particular to identify those practices which can harm vulnerable consumers.
“We look forward to seeing the findings which, where necessary, will be used to take further enforcement action and drive up standards within the industry.”
