Citing concerns that payday advance providers may be enticing borrowers to take out short term loans and then neglecting to investigate if these borrowers can afford loan repayments, the Office of Fair Trading is set to investigate the payday lending industry.
Many payday lending industry detractors have been critical of the short term loans provided by these firms due to their high interest rates, stating that debt can spiral out of control if the loans are not repaid at the end of the term. With an increasing number of Brits encountering financial pressure due to jobs losses, wage freezes, and increases to the cost of living, these instant cash loans have become quite attractive to those who have the inability to approach traditional sources of credit since the credit crunch and economic downturn.
Now, the OFT has announced its plans to conduct reviews of as many as 50 providers of short term loans, with the possible result being that firms that are found to be in violation of current lending regulations could face losing their credit licences. The regulatory body has said in the past that payday lenders should not face interest charge restrictions, stating that these lenders offer vital access to credit for those unable to avail themselves of more traditional sources.
Instead, the OFT’s review will focus on the selling practices of these lenders, including whether or not the borrowed funds are issued before lenders determine if the borrower will be able to repay the loan or if groups vulnerable to debt, such as the unemployed or students, are being specifically targeted.