The payday loan industry has had its wrist slapped again today following news that several firms have been using aggressive, strong-arm tactics to recover debts. ‘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,’ explains David Fisher, the OFT’s director of consumer credit.
It appears that many firms are lending to people that are unable to pay the money back, who are then being slapped with interest fees of up to 4,000%. As debts spiral out of control, lenders are becoming increasingly aggressive in their attempts to collect what is owed.
The OFT has opted against naming names, but has revealed that it is writing to all 240 lenders in the market to voice its concerns. Some 50 firms are likely to receive an additional warning over their aggressive debt collection tactics. ‘Lenders need to improve their business practices or risk enforcement action,’ says Fisher.
The OFT has also issued a plea to consumers to think twice before borrowing money from these outfits. Fisher says, 'I would urge anyone thinking about taking out a payday loan to make sure they fully understand the costs involved so they can be sure they can afford to repay it.' The statistics make for alarming reading: a third of borrowers take out payday loans to pay off other payday loans; 60% of people use loans to pay bills or buy essentials like food, nappies or petrol; 46% of UK payday customers have an income of less than £15,500 a year; and one in eight workers take out regular payday loans, costing them three days' wages.
To find out more about the payday loans industry, and about the other firms getting rich off the poverty economy, read MT’s feature on ‘Cashing in on the poor’.