Reuters/London
Britain’s consumer watchdog has asked for a review into payday lenders after finding deep-rooted problems in the way the £2bn a year industry treats vulnerable customers.
The lenders, which make loans to be repaid when borrowers get their wages, have grown rapidly in Britain as banks have cut back on short-term credit after the 2008 financial crisis. But they have been attacked by politicians and consumer groups for charging sky-high interest rates and for shoddy treatment of borrowers.
“We have seen evidence of financial loss and personal distress to many people,” Clive Maxwell, chief executive of the Office of Fair Trading (OFT), said yesterday.
The OFT said firms were profiting from loans that could not be paid back on time. It found about half of lenders’ revenues come from fees charged for customers extending loans.
And 20% of revenues came from loans which were extended at least four times.
The watchdog said it was difficult for customers to identify and compare the cost of loans from payday lenders and that not all firms complied with relevant laws. It also found that many of the borrowers had poor credit histories and limited access to other forms of credit.
It said lenders were competing primarily on the availability and speed of loans rather than on the price of paying them back. Payday lenders typically hand out loans of up to £1,000.
The OFT estimated around £8mn are made each year. Firms such as Wonga, QuickQuid and Lending Stream have flourished as the banks have pulled back.
Apart from the payday firms, customers have few alternatives other than to borrow from friends and family or from pawnbrokers such as H&T Group and Albemarle & Bond, which have also thrived.
