The latest headline to hit the papers is the news that payday lending companies have recently been told to sharpen up their acts after the OFT found evidence of mass irresponsible.
It has been reported that the OFT is planning to give the top 50 lending companies just 12 weeks to change their ways and prove that they are in fact lending responsibly and carrying out the proper checks to ensure their clients can actually afford to pay back the money that they are borrowing.
It has also been reported that the government plan to put in more restrictions on how lenders can advertise and market these types of loans to the public, as currently they are not happy with the messages and targeting of the advertising and marketing campaigns behind many of these fairly new lending companies.
The government will work closely with the Office of Fair Trading, Advertising Standards Agency, Committees of Advertising Practice, and industry to make sure advertising does not lure consumers into taking out payday loans that are not right for them – Jo Swinson, the Consumer Affairs Minister.
There has been a lot of talk about capping interest rates as this is one of core reasons that people fall into a debt cycle with these instant loans however after a recently published report from Bristol University came to light it seems for the time being the decision is to leave the interest rates as they are without any restriction.
A charity named StepDebt say that the average debt from a payday loan is now £1,657 which is a lot higher than the average client’s monthly income.
These lenders originally started a very lucrative business offering instant payday loans that are generally paid back within 1 month, however it is now the case that nearly half the revenue generate by these companies actually came from longer loan periods as many lenders now offer loans across 12 months or some even up to 2 years which is a long step away from the initial concept of payday loans.
The names of the companies involved in this investigation have not yet been released however we are aware of some of the reasons that they are being accused of irresponsible lending:
It seems that what was once a gleaming benefit to payday loans – the fact that even if you had a bad credit score – could now be coming back ground to bite these lending companies as this is one of the reasons that they are now in hot water. Doing a credit check on a potential borrowers is one of the ways high street banks check to see if they can in fact afford the loan and are in a position to pay it back, it might be the case that payday lenders will soon be enforcing similar practices to ensure that any new requirements put in place are met.
Payday Lenders Under Scrutiny by OFT,