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Payday lenders face competition inquiry

The Office of Fair Trading (OFT) has referred payday lenders to the Competition Commission after serious concerns about the integrity of the industry were once again raised.

The main concern is that competition between lenders has “deep-rooted problems”, and there are barriers limiting consumer’s ability to switch between lenders. The OFT also found that there were varying levels of compliance with rules from lenders, leaving those companies that are complying at a “competitive disadvantage”. This includes companies failing to carry out affordability checks on borrowers.

Payday lenders make credit available to consumers at short notice, some advertising that money could hit your account within fifteen minutes of your application. While this may seem convenient and easy, sky-high interest rates if a payment is missed or late mean that repaying the money could be extremely expensive, causing “misery and hardship” for many borrowers according to the OFT.

Critics have said that the OFT have simply taken too long to act, and handing over to the competition commission could add an extra 12 months onto an investigation before any action can be taken against lenders.

Some lenders have been seen to be encouraging borrowers to roll over loans after the initial period has expired to give them more time to pay the balance off; however this is at the expense of hugely inflated interest rates, sometimes as high 4000% apr. It has also been reported that some people have had as many as 7 payday loans at any one time.

In this latest move the OFT has highlighted its ambition to raise industry standards, and dispel what many see as grossly irresponsible lending.

If you have been affected by a payday loan and would like advice on any debt or borrowing issues surrounding it, please contact one of our advisors who will be happy to help

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