Fifty payday lenders in Britain have been given three months to change their ways or risk losing their licence after an investigation uncovered “widespread irresponsible lending”.
The Office of Fair Trading said many companies offering short-term, high-cost loans were failing to comply with standards and identified “deep-rooted problems” in the way they compete with each other.
The watchdog said lenders were failing to conduct adequate affordability assessments, using aggressive debt collection practices, and showing no forebearance to borrowers in financial difficulty.
It did not make public the names of those companies involved.
Following inspections of the top 50 payday lenders, which account for 90 percent of the market, the OFT has given them 12 weeks to clean up their act, while it also plans to refer the market to the Competition Commission.
OFT Chief Executive Clive Maxwell said: “We have found fundamental problems with the way the payday market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers.
“Payday lenders are earning up to half their revenue not from one-off loans, but from rolled over or re-financed deals where unexpected costs can rapidly mount up.”
The crackdown is a double blow to the industry which also faces new advertising restrictions and tighter monitoring under government plans to be announced later.
The plans, which could come into effect from April 2014, include limiting the number of television adverts they can show per hour and forcing them to display their interest rates clearly.
From next year a new regulator, the Financial Conduct Authority (FCA), will oversee the consumer credit market, and has pledged to make payday lending a priority.
Business Minister Jo Swinson said stronger powers were needed to crack down on the “unscrupulous behaviour” of some companies.
She said the new regulator would be able to ban certain products, stop lenders without a solid business model entering the market, and cap interest rates.
Consumer group Which? said a growing number of consumers were turning to the high-cost payday loans after being rejected for other forms of credit.
“We want to see the regulators immediately crack down on payday lenders who flout the rules and for new powers to be used to take strong, proactive action to clean up the whole of the credit market,” said Which? executive director Richard Lloyd.
Payday loan companies told to clean up their act
