The Office of Fair Trading has revealed the findings of a year-long review into Britain's £2 billion payday lending sector, and the watchdog has issued a clear warning to the unscrupulous businesses targeting hand-to-mouthers.
The OFT is giving the leading 50 payday lenders, which make up 90 per cent of the payday market, 12 weeks to change their business practices or risk losing their licences, after it uncovered evidence of 'widespread irresponsible lending and failure to comply with the standards required of them.'
Over the past year, the watchdog has been looking into the workings of 240 lenders to tackle any shoddy practices. In its interim report published in November, the OFT warned that it had 'uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them.'
The OFT has now said it will refer the payday lending market to the Competition Commission after it found evidence of deep-rooted problems in how lenders compete with each other.
Despite payday loans being described as one-off short term loans, costing an average of £25 per £100 for 30 days, up to half of payday lenders' revenue comes from loans that last longer and cost more because they are rolled over or refinanced. The OFT also found that payday lenders are not competing with each other for this large source of revenue because by this time they have a captive market.
The OFT's findings came as the government announced that payday loans firms will now face tighter advertising rules. Working with the Advertising Standards Authority, the government intends to force companies to make sure interest rates are clearly displayed, to limit the number of adverts companies put out each hour and to clamp down on when they can advertise – for example after Christmas, and towards the end of the month when people are more likely to be short of cash.
Payday loan firms have been accused of using aggressive, strong-arm tactics to recover debts and the government has been tackling the industry to make it more transparent.