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Payday loan firms warned over lending and debt collection Payday loan firms warned over lending and debt collection
(35 minutes later)
The payday loan industry has been warned to improve the way it lends money and collects debts, or face sanctions. The payday loan industry has been warned to improve the way it lends money and collects debts, or face fines or closures.
The Office of Fair Trading (OFT), in an interim report, says most of the 50 big firms it has been inspecting do not operate fully by its rules.The Office of Fair Trading (OFT), in an interim report, says most of the 50 big firms it has been inspecting do not operate fully by its rules.
The OFT says it is worried by reckless lending and aggressive debt collection.The OFT says it is worried by reckless lending and aggressive debt collection.
It has now begun formal investigations into several payday lenders over aggressive debt collection practices.It has now begun formal investigations into several payday lenders over aggressive debt collection practices.
The OFT will publish its full report in the New Year, when it has ended an investigation which it started in February 2012. The OFT will publish its full report in the new year, when it has ended an investigation which it started in February 2012.
But David Fisher, the OFT's director of consumer credit, said all 240 payday loan lenders have been put on notice to improve. But David Fisher, the OFT's director of consumer credit, said all 240 payday lenders have been put on notice to improve.
"We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them. "We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them," he said.
"It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action," he added."It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action," he added.
The OFT is worried about the "poor practices" which its enquires have been uncovering, and which chime closely with many of the criticisms that consumer groups have been making of payday lenders. Updated rules
The OFT is worried about the "poor practices" which its enquiries have been uncovering, and which chime closely with many of the criticisms that consumer groups have been making of payday lenders.
Among the OFT's concerns are that:
  • lenders do not check properly if their borrowers can afford to repay the money they have borrowed
  • too many loans are not repaid on time
  • the loans are then extended too often
  • lenders are too aggressive when borrowers fail to repay promptly
The regulator has become especially worried about the way payday loan firms use a type of repayment agreement, called a continuous payment authority (CPA), to ensure they are repaid automatically.
The OFT has updated its rules for the industry to make it clear that if borrowers sign up for a CPA, it must be with their explicit agreement.
Borrowers must be told how a CPA works and how they can bring one to an end.
Lenders must not keep on trying to drain cash from their borrowers' accounts if there is not enough money available to meet the debt.
"Our report shows that a large number of payday loans are not repaid on time," said Mr Fisher.
"Our revised guidance makes it absolutely clear to lenders what we expect from them when using continuous payment authority to recover debts and that we will not accept its misuse."