The Office of Fair Trading is currently investigating the short term loans sector in a move that has been welcomed by the industry representatives, the Consumer Finance Association, which represents the majority of the main players in the short term loans industry.
The CFA’ s chief executive, John Lamidey, said that the association knew that there were rogue elements in the industry that needed weeding out. He said that the main concerns were poor advertising and the availability of information about interest rates and the lack of checks on people’s ability to pay loans back.
He said that the association had been developing a code of conduct which should serve as the industry standard. He defended the role of short term loans lenders as being an important avenue for some people to access short term loans from time to time.
The OFT has not completed a survey on the high cost credit arena for two years and during this time the whole sector has grown considerably.
The OFT’s last survey did not make a comment about interest rates that the companies had been charging as it said that pawnbrokers, short term loans companies and other short term loans companies were providing a service that was not otherwise available. It said after the last survey that if these companies did not exist then some people might turn to unlicensed, illegal loan sharks who operated in many parts of Britain, especially in poorer neighbourhoods.
The last survey did in fact reveal some malpractice and a total of 43 companies actually lost their license during the review.
The OFT has the power to revoke the licences of any company that it thinks is not sticking to the lending rules. Yes Loans, for instance, has recently had its licence revoked by the OFT, although critics have pointed out that the company has the ability to trade right through the 1 month appeal process.
During this review period, the results of which will not be released in total until later in the year, the main concerns will be the reported easy roll-over extension and the standards of advertising. The roll-over extensions allow some borrowers to keep lending the amount they have borrowed month after month, but racking up huge interest rates while they do so, to the point where they cannot possibly pay the original amount back.