THE COMPETITION Commission is to investigate the payday loans industry to tackle concerns that vulnerable customers are misled by adverts, the Office of Fair Trading (OFT) announced yesterday.
It could ban lenders from rolling over loans several times, and wants to make the terms and conditions of the credit offered clearer. The authorities fear it is often hard for consumers to work out exactly how much interest they will pay, undermining competition in the market.
Officials also worry competition on speed of access to cash means too little concern is given to the affordability of loans, while the desperation of some borrowers can lead them to pay too little attention to prices. Barriers to switching between lenders when loans are rolled over is also a worry, the OFT said.
“Competition appears not to be working properly in the payday lending market, allowing firms to profit from making loans that cannot be paid back on time,” said OFT boss Clive Maxwell. “We have seen evidence of financial loss and personal distress to many people.”
Online payday lender Wonga said it looked forward to working with the regulators, and noted it only rolls over loans a maximum of three times.
“Alongside sharing our best practice such as transparency of pricing, freezing default interest, limiting extensions, proper credit checking and use and return of data to the credit reference agencies, we will be making the point that the Competition Commission should use this opportunity to review how consumers use and access all forms of short-term credit including overdrafts and credit cards,” the firm said in a statement.