Weekly payday roundup: 7 days ended 4 jan 2013:
The Office of Fair Trading has to stop dragging its feet and put the irons to the payday lending industry before more Brits fall into debt, one MP has urged.
This week, staunch critic of payday advance lending Labour MP Stella Creasy has said the OFT’s irresponsible lending guidance is much too weak when it comes to keeping providers of short term loans in line. With an increasing number of Brits being raked over the coals of unsustainable debt, Dr Creasy says these financial difficulties are only being helped along by overly permissive OFT guidance.
It’s true that the Government amended the Financial Services Bill last month to provide the soon to be created Financial Conduct Authority the power to cap interest rates on short term lending such as payday loans. However, the Labour MP said that with the FCA’s creation not slated until 2014, something must be done now to begin reining in problem lenders – and that the OFT needs to take the matter well in hand – and that can be accomplished by strengthening its guidance on irresponsible credit prices.
Delaying action until next year would provide prime opportunities for the payday lending industry – a market Dr Creasy referred to as ‘legal loan sharks’ – to positively rake in massive loads of money whilst dragging low-income earning Brits deep into debt, the Labour MP said. However, this kind of activity can easily be curtailed if the OFT would simply srengthen its guidance concerning irresponsible lending this year in order to provide at least some measure of protection for vulnerable individuals ahead of the creation of the FCA.
Dr Creasy urged the OFT to send a clear message to payday lenders by updating and strengthening their guidance, as it would not only protect Brits this year but also set the standards for the new watchdog as it goes into effect next year. The Walthamstow MP also said she would like to see the OFT to make it a requirement of payday loan providers to keep records of every payday loan they agree to by using a centralised register in an effort to increase transparency and accountability within the sector.
The MP for Walthamstow, who fronts the payday loan campaign group Sharkstoppers, also wants the OFT to require all payday lenders to record all the loans they make in a central register to make them more accountable and transparent.
She says: “The problems with this lending are not only caused by the high costs associated with it. Some borrowers can end up taking out multiple loans, and many lenders make a virtue of the speed of their credit checks.
“To make lenders responsible for the amount they offer and the consequences of borrowing, the OFT should require all lenders to report all loans made to a real-time credit register at the very moment they provide the loan.”
She is also calling for a reform in the way lenders use continuous payment authorities, where you give your card number to a company for it to take regular payments. Unlike direct debits, CPAs can vary in amount and there is no set date when the money can be taken.
The OFT issued its irresponsible lending guidance for payday lenders in March 2010 and updated it in February 2011.
It states creditors should not use “misleading or oppressive behaviour” when advertising, selling or seeking to enforce a credit agreement and should make a “reasonable assessment” of whether a borrower can afford the repayments. It also states lenders should treat borrowers fairly if they experience payment difficulties and make sure they fully understand the overall cost of the credit.