UK watchdog investigates payday lending practices

LONDON Tue Nov 20, 2012 5:25pm IST

LONDON (Reuters) - Britain's consumer watchdog has launched investigations into several payday lenders over aggressive debt collection and expressed its concern about general poor practice within the sector.

Payday lenders offer short-term loans, which are intended to be paid back when borrowers receive their wages. Britons have increasingly turned to these loans as mainstream banks have tightened their criteria for granting short-term credit.

"We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them," David Fisher, the Office of Fair Trading's (OFT) director of consumer credit, said on Tuesday.

"It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action."

The OFT identified issues around debt-collection practices, the adequacy of affordability checks made by lenders, the number of loans not repaid on time and the lack of forbearance shown by some lenders when borrowers get into financial difficulties.

Wonga.com, which offers individuals short-term loans of up to 1,000 pounds ($1,600), more than trebled its earnings last year. Like other payday lenders, the company has faced criticism that its annual percentage rate (APR), listed on Wonga.com as 4,214 percent, takes advantage of the financially vulnerable.

The OFT is reviewing the whole sector and has said that some firms will face enforcement action if they do not improve their practices.

Wonga said that it welcomed the OFT's review. "We provide a valued, transparent service to more than a million customers and want to see rogue practices rooted out across all financial services," it said.

The OFT will publish a full report next year and state whether wider action is needed to tackle problems in the sector. ($1 = 0.6284 British pounds)

(Reporting by Matt Scuffham; Editing by David Goodman)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Literary Giant Dies

Literary Giant Dies

Nobel winner Garcia Marquez, master of magical realism, dies at 87.  Read 

Election 2014

Election 2014

India holds biggest day of voting with BJP gaining strength  Full Article | Full Coverage 

Insider Trading

Insider Trading

Ex-Goldman director Gupta starts prison term on June 17.  Full Article 

Market Eye

Market Eye

Sensex jumps 351 points, snaps 3-day losing streak  Full Article 

Expansion Plans

Expansion Plans

Reliance Industries, HPCL Mittal plan refinery expansions.  Full Article 

S&P on India

S&P on India

S&P: India's ratings to depend on next govt econ, fiscal policies.  Full Article 

Ambitious Aim

Ambitious Aim

In green car race, Toyota adds muscle with fuel-cell launch.  Full Article 

Deal Talk

Deal Talk

Piramal to buy 20 percent stake in Shriram Capital for $334 million.  Full Article 

Bond Market

Bond Market

A star abroad, RBI boss riles bond traders at home  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage