Middlesbrough South and East Cleveland Labour MP, Tom Blenkinsop, today (6th March) suggested that a report by the Office of Fair Trading (OFT) is a clear sign that the payday loan industry is out of control and in urgent need of reform.
A yearlong review by the OFT has led to payday lenders been given 12 weeks to change their business practices after regulators uncovered widespread evidence of irresponsible lending and breaches of the law.
The OFT has also announced that, subject to consultation, it proposes to refer the payday lending market to the Competition Commission after it found evidence of deep-rooted problems in how lenders compete with each other.
“The report by the OFT is damning for the industry, but it clearly shows a lack of action by Government in getting the payday loan industry in order. An ultimate referral of the payday loan industry to the Competition Commission highlights the seriousness of the issue and the Government must use this report as a means to kick start reforms.
“The OFT found areas of grave concern including: lenders failing to conduct adequate assessments of affordability before lending or before rolling over loans; failing to explain adequately how payments will be collected; using aggressive debt collection practices; and not treating borrowers in financial difficulty with forbearance.
“However, I still feel there is room for improvement and I would urge that a cap on the total cost of borrowing would be the best way to get the industry under control. This would make it easier to ensure that those who use these companies – often because they are the only people who will lend to them at the moment – don’t get into a spiral of debt as they try to pay off loans with extortionate rates of interests. A cap would ensure that it the lenders are not left to decide what consumers can pay.
“For areas of the country like Teesside with large numbers of local people either unemployed and or even in work but on low wages, taking out a payday loan can be opening the doors to distress and poverty. The constant daytime TV advertising for these toxic products tempts far too many people into debt – and these people are not being given proper advice on the cash that will have to be paid back.
“I will continue to campaign for reform of this industry so that people are getting a fair deal and I will also point out alternatives for people who find they are struggling financially. Credit Unions are established across Teesside and more should be done to increase awareness of sources of affordable credit.”