The Office of Fair Trading has decided to take action against many providers of cash loans after the volume of complaints made against these instant cash loan companies doubled over the course of 12 months, industry insiders recently reported.
While the OFT has not named the providers of short term loans involved in the dispute, it did say that concerns had been raised that companies were not checking if their customers had the financial ability to repay the loans promptly. The watchdog organisation also feared that these lenders were not giving customers a proper explanation of the terms of these loans, especially in light of the often high fees for neglecting to repay the loans in a timely manner.
Those lenders fund to be guilty of misconduct could see their credit licenses revoked or be given no choice but to alter their lending practices. The OFT has now widened its investigation in the run up to the festive season, and will be examining an additional 50 firms and their online advertising efforts.
The regulator received more than 1,500 complaints regarding these controversial firms from January of 2011, which was a marked increase over the 700 it received over the entirety of 2010. It was particularly surprised that credit card companies were complained about much less than payday lenders, even though the former is used much more regularly and in higher volumes by the general public.
Payday lenders have been the target of large levels of criticism as of late from both political figures and consumer interest groups. The interest rates on these loans are considered to be high, with APR interest rates of around 3,000 per cent in some cases.
However, industry experts say that the APR is inaccurate in regards to calculating the real cost of repaying an instant cash loan. This is because APRs are used to calculate an annualised interest rate for more traditional loans with repayment terms of one year or more – and payday lenders require repayment in much shorter terms, such as anywhere from a few weeks to a maximum of 45 days.