The Office of Fair Trading (OFT) has warned Britain’s 50 largest payday loan companies to shape up or ship out following the results of their investigation into the industry. Starting this week, the chains have 12 weeks to closely examine and alter their business methods or risk having their credit licences removed.
Since the effects of the recession began to take a toll on the high street, the presence of payday loan companies has increased hugely in town centres. Chains such as Wonga can have several different properties on the same street, while frequent advertisements popping up on television and online draw yet more cash strapped citizens in.
The problem has grown so great that the Citizens Advice Bureau (CAB) has reported a ten-fold increase in the number of people coming to them with multiple debts in only four years.
During the investigation, the OFT found that an overwhelming majority of leading chains are failing to properly assess the affordability of loans on an individual basis, then using overly aggressive collection techniques when consumers are unable to repay the debt.
Worse, still, is the fact that a number of borrowers choose to pay off the original debt by taking out further contracts – prompted, of course, by the companies who stand to benefit from this misery.
However, the OFT believes that further investigation is required to truly assess the effect the industry is having on the British public, and so is considering referring the case to the Competition Commission. Furthermore, it believes the industry would hugely benefit from supervision by the Financial Conduct Authority.
Chief executive of the OFT, Clive Maxwell, says; “We have found fundamental problems with the way the payday market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers.
“We are proposing to refer this market to the Competition Commission, which has wider powers to get to the heart of the problems in this market and to identify and impose lasting solutions that protect consumers.
“If we do not see rapid, significant improvements by the 50 lenders we inspected they risk their licences being removed – payday lending is a top enforcement priority for the OFT.”
Should the OFT make good on their threats to close lenders if changes are not made quickly, the face of Britain’s high street may once again change this year. However, while many may not agree with them, payday loan shops do pay rents on the high street and have helped to lower the commercial property vacancy rate for many towns and cities throughout the UK.
If they are removed from the equation, so also may be a number of local traders relying upon them to draw business to the high street. In a month where it was revealed consumer confidence grew in February, it must be hoped that a suitable resolution can be found for all concerned.
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