Member Article

Payday lending regulation has been timid and ineffective

The Office of Fair Trading (OFT) has been “ineffective and timid in the extreme” in regulating the payday lending industry.

That was the conclusion of the Public Accounts Committee’s report on regulating consumer credit.

The body of MPs suggest the OFT should step in to fine, and revoke the licences of firms who mistreat customers.

Consumer credit in the UK is one of Europe’s biggest markets, as £176bn was lent to customers in 2011 say the Committee.

Margaret Hodge MP, Chair of the Committee of Public Accounts, said: “With money getting tighter and banks lending less, consumers are increasingly having to turn to alternative providers of credit. Some of these lenders use predatory techniques to target vulnerable people on low incomes, encouraging them to take out loans which, when rolled over with extra interest, rapidly become out of control debts.

“Such disgraceful practices by the shabby end of the credit market are costing borrowers an estimated £450 million or more each year.

“Meanwhile, the Office of Fair Trading, the regulator of this sector, has been ineffective and timid in the extreme. It passively waits for complaints from consumers before acting. It has never given a fine to any of the 72,000 firms in this market and very rarely revokes a company’s licence.

“It doesn’t understand the market – how much each firm lends and who its customers are - and can’t be certain if directors of companies that have run into trouble are now running other companies.”

“Its investment in regulation is paltry. It could easily have increased its fees, especially to larger credit card companies who only pay a £1,075 fee, and used that income to raise its game as a regulator.”

“The regulatory regime must stop tiptoeing round the problem. The OFT and its successor as regulator, the Financial Conduct Authority, need better intelligence and a willingness, when hearing of poor practice by lenders, to crack down swiftly with tough sanctions.”

The report also suggested the OFT did not have enough resources at its disposal due to the manner in which it collects licence fees from lenders.

It said the licence fees paid by each lender should be proportional to the size of the company, and not a flat fee.

This was posted in Bdaily's Members' News section by Tom Keighley .