The United Kingdom’s Office of Free Trade (OFT) has announced that it will be investigating 50 companies that offer pay day loans. The OFT last investigated this market in 2010, and found that these loans, while high interest offered a service for clients unable to obtain loans elsewhere. According to the OFT, during the last investigation 43 companies voluntarily surrendered their licenses to operate, and the OFT removed 13 more licenses.
The OFT controls the loan licenses these companies need to operate, so an investigation by the OFT is of major importance to these companies. Since the 2010 investigation, due to the economy, the use of these pay day loan companies has increased. With this increase, the number of complaints turned in to the OFT has increased in kind. According to David Fisher, OFT’s Director of Consumer Credit, “We are concerned that some pay day lenders are taking advantage of people in financial difficulty, in breach of the Consumer Credit Act. This is unacceptable. We will work with the trade bodies to drive up standards but will also not hesitate to take enforcement action, including revoking firms’ licenses to operate where necessary.”
Actions that the OFT will be specifically investigating include profiling of certain groups of consumers who are most likely to have difficulty repaying these loans such as students, the unemployed, and the elderly. The OFT will also be looking at companies that target immigrants who may not understand the documents that they are signing to obtain a loan. Other aspects of the investigation will include how the companies determine the credit worthiness of those who receive loans. It is a violation of credit laws to approve loans to consumers who cannot repay the debt. Worse, consumer complaints state that loan companies encourage their clients to roll over their loans into new loans that lead to much higher interest rates and fees, using the tease of more money upfront.
Which?, a consumer watchdog company has found many potential violations in recent reviews of pay day loan companies. Which? Chief Executive Peter Vicary-Smith said, “Which? found widespread poor practice in the pay day loans market when we investigated it last year, so we’re pleased the OFT plans to review the sector. All too often, we found firms making misleading claims about APR, suggesting customers borrow more than they need and then encouraging them to rollover existing loans for several months. We also found several potential breaches of the Consumer Credit Act.”
It was these types of investigations, plus the increasing number of complaints that has let the OFT to open an investigation. According to the OFT, the number of pay day loans has quadrupled since their last investigation in 2010. The OFT is concerned that vulnerable citizens, with no where else to go, are not reporting problems with their pay day loan companies. It appears that the OFT may be right.