Payday loans companies are once again set to be investigated by the Office of Fair Trading amidst suspicions that some firms are unscrupulously lending to customers whom they have no idea if they have the ability to repay the loans.
Pushing short term loans on customers in this way will only lead to further mud for one and all to sling at the sector and, if enforcement is the outcome, it will stick for a reason, this time.
The oft review will pay visits to 50 instant cash loan companies in connection with the investigation. The very real concern is that by offering to loan money to individuals who are unable to meet the repayments, those concerned will begin being sucked into a whirlpool of debt with the inevitability, save a guardian angel appearing from out of the blue, of that customer drowning in unpaid bills, short term loans being one them.
This is the second time in two years that the OFT has been asked to look into the activities of the short term loans sector. In a similar investigation in 2010, it found that their house was in order and were preferable alternatives to doorstep lending. And in the act of fairness, as pawnbrokers and other home-lending facilities do not have a cap on their interest rates, the OFT were powerless to set a ceiling for this type of short term loans, either.
This move has got to hurt the sector, as there is an element of them being expected to nanny the customer. If a Ferrari salesman sold a £250,000 motor to someone who immediately went out and crashed the vehicle, would Ferrari be in trouble for not checking whether driving the vehicle was in the customer’s capability? Of course not. The onus of responsibility has to fall squarely on the shoulders of the lender, not the borrower.
This second investigation, however, is not about the credence of the loans, rather the manner in which some of the firms are pushing loans on customers with an inability to repay. The simple argument is: more fool them, they’ll soon stop when they see their pledge book and the indifference between what it has lent compared to what’s being received. But in order to protect more vulnerable citizens from the bullish behaviour, the OFT is stepping in before the problem gets out of hand.
In a follow up report tomorrow, we will look at what areas are to be investigated and the facts and figures behind the firms who had their credit licenses revoked in similar circumstances two years ago.