On November 26 2013, the Office of Fair Trading (OFT) issued an update on its compliance review of the UK’s 50 leading payday lenders.
Since the last update in September, no more lenders have exited the market, so it remains the case that 19 of these 50 lenders have ceased trading or now concentrate on other areas of consumer credit.
However, the most eye-catching news from the latest update is that six of the 50 lenders are under investigation by the OFT. When the final report was published in March 2013, all 50 firms were warned to improve their practices and procedures or face possible enforcement action. In the case of 15 more lenders, the OFT is ‘reviewing detailed evidence’, which may or may not lead to a formal investigation. The ultimate sanction available to the OFT following an investigation is to remove a firm’s Consumer Credit Licence.
With 19 lenders having left the market, six under investigation and 15 having evidence reviewed, this means that, at most, 10 of the 50 lenders have so far satisfied the OFT that they are compliant.
The main areas of concern identified by the OFT in the compliance review were:
• Lenders not carrying out affordability assessments
• Not explaining sufficiently and clearly how payments will be collected
• Use of “aggressive” methods to recover debts
• The treatment of borrowers in financial difficulty
The OFT press release on the subject used some rather stark language to describe its findings, which included: “Evidence of widespread irresponsible lending”, “Too many people are granted loans they cannot afford to repay” and “Payday lenders’ revenues are heavily reliant on those customers who fail to repay their original loan in full on time.”
So it remains to be seen what the outcome will be for these 50 firms, or how strict the Financial Conduct Authority (FCA) will be with payday lenders when it takes over as the consumer credit regulator in April 2014. The payday loan landscape is changing all the time, with the FCA proposing new rules in areas such as loan rollovers, use of continuous payment authority, advertising and affordability checks. Earlier in November 2013, the Government announced it would impose a cap on the total cost of lending.
Other lenders who were not amongst the 50 leading lenders have previously had their Consumer Credit Licences revoked by the OFT. These include MCO Capital Ltd, who breached Money Laundering requirements; and B2B International UK Ltd and Loansdirect2u.com Ltd, two linked companies for whom a director failed to disclose his previous convictions.