Following the investigation that started in February of this year, the Office of Fair Trading has published an interim report, giving indication what changes the payday loan industry will be facing.
All 240 payday loan companies currently operating within the industry were looked at and 50 major lenders were contacted in order to be monitored more closely. OFT acted as a result of growing concern, that the industry’s bad business practices and lack of regulation is pushing vulnerable consumers into financial difficulty.
The main areas of investigation covered; CPA (Continuous Payment Authority), insufficient affordability and credit checking and overly aggressive debt collection methods.
Russell Hamblin Boone, Chief Executive of Consumer Finance Association, trade association representing the payday loan lenders, expressed CFAs views saying that members show support and are happy to co-operate with OFT and believes that the smaller firms are the ones misbehaving. Mr Hamblin Boone believes that the new Code of Practices that has come to force as of this week will set higher standards for the industry thus improving its behaviour. He said “Our biggest advocates are our customers themselves. So as well as highlighting areas of poor practice, the final report must acknowledge the high levels of satisfaction and the value our customers place on short-term credit products.”
Newspapers had a field day covering this story with persistent contempt towards the industry, uninterested the payday loan lenders and large number of customers’ points of view. Few extreme cases of completely unethical lending practices were shown as example, portrayed as industry norm, accentuated with strong and misleading use of language “people are forced to take out loans” bringing a distorted picture of the situation to its readers.
Umbrella Loans Ltd takes the concerns surrounding the payday loan industry seriously and supports the idea that tougher regulations must be implemented. The payday loan industry does need “cleaning up” so that the companies following the rules and practicing responsible lending will not be continuously hounded by bad publicity. It is however unhelpful to both consumers and the industry to deliberately portray lenders as “legal loan sharks”. Responsible borrowers that use the service as its intended – for a short term solution, should not be treated as if they are incapable to make decisions for themselves.
Merle Oper, MD of Umbrella Loans Ltd says: “It is illogical to think that a company with a long term vision profits from non-paying customers and deliberately targets them. Umbrella Loans has used OFT guidelines as standard business practice from inception of the business in 2010. As well as setting the credit scoring to reject clients with obvious financial difficulties, we speak with each potential customer as part of our underwriting process; in order to establish their personal financial circumstances and advise them to communicate with us throughout the process, especially should their position change during the contract period. The aim is to work with our clients, offering them reasonable solutions in case they find themselves struggling to pay on agreed time. We want to create satisfied client base that will not use our services to support irresponsible lifestyle of spiralling debt, but will turn to us for short term financial needs.”