The Competitions Commission has received a referral from the Office of Fair Trading (OFT) about pay day loan lenders. The consumer protection body has said there are “deep rooted” issues with lending practices in the industry.
In its referral, the OFT has stated that consumers are struggling to compare loans from different companies, making it tough to identify the true cost of borrowing.
It also raised issues with there being barriers in place to prevent customers switching lenders, and a clear preference for speed of lending, against cost.
Its statement said:
“The competitive pressure to approve loans quickly may give firms an incentive to skimp on the affordability assessment which is designed to prevent irresponsible lending and protect consumers,” the OFT said in a statement.
“[Business models are] predicated on making loans which are unaffordable, leading to borrowers paying far more than expected through rollovers, additional interest and other charges.”
Whilst the referral concentrates on the consumer market, the fact that these companies are moving into the business sphere in increasing numbers will also concern many.
Working with invoice discounting and factoring facilities would be preferential, for example. There are many highly reputable and experienced Scottish factoring companies working in the industry today, allowing companies to find the best offers in this regard.
Responding to the referral, the Consumer Finance Association (CFA), which represents payday lenders, said it was not happy with the continued scrutiny.
However, it did go on to say it would welcome regulation.
Many lenders in the industry have also said they are already implementing changes to their business models.