PAYDAY lenders must do more to check borrowers can afford their loans, delay more foreclosures and moderate their debt collection practices, the Office of Fair Trading (OFT) warned yesterday as it announced investigations into several lenders.
But the body’s new report also found most customers of payday lenders are satisfied with the service they receive, often using the credit services as a lifeline when they are short of funds.
Despite concern from consumer groups, the OFT report pointed to industry evidence that 56 per cent of customers used payday loans to “prevent a one-off financial difficulty becoming a wider financial crisis,” while 54 per cent “felt the loans made it easier to pay bills on time.”
However, the OFT still wrote to all 240 payday lenders to express concerns over their behaviour.
“We are concerned about the extent to which advertising appears to target people in financial difficulty and encourage rolling over of loans,” the report said. “For example, around one third of websites [reviewed] included statements such as ‘no credit checks’, ‘loan extension guaranteed’ and ‘extend loans up to four or five times’.”
That would suggest irresponsible lending and failure to carry out affordability checks.
And the OFT also fears that giving the annualise interest rate on a loan is insufficient to give a balanced view of the service, as the full risks of taking on a loan are not always explained clearly.
The organisation revealed several investigations relate to worries over debt collection, including allegations firms mislead customers, pestered debtors over the phone and threatened excessive collection charges.