The Office for Fair Trading has said that most of the 50 major payday lenders it has scrutinised since launching an investigation earlier this year failed to comply with legal obligations and expected standards. The OFT told the 50 biggest firms that they may face enforcement action, which could mean putting them out of business.
The regulator has also warned the UK’s 240 payday firms about growing evidence of poor practices in the sector. Specifically the OFT accused lenders of misusing continuous payment authorities (CPA), which give lenders the power to take money from people’s bank accounts. Some lenders do so if borrowers are late with payments. The OFT also accused payday firms of failing to check whether borrowers can afford to repay the loans.
A recent Channel 4 News investigation also focused on the lending practices of payday lenders and the failure of some to carry out proper checks on whether borrowers can repay the loans. The story can be seen here.
These practices are in stark contrast to the activities of community finance providers. These local, ethical organisations are focused on providing affordable finance along with advice and support to people who can’t access bank loans, and who may otherwise turn to high cost payday lenders. Last year CDFA members helped almost 29,000 people and saved them around £7.5million in high cost credit repayments.