OFT probes payday loans companies
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A belated crackdown on payday loans companies could be imminent. Ironically the threat to companies like Wonga or Speedycash is not because of their outlandish interest rates but simply because they are stifling competition. Part of the message the Office of Fair Trading seems to be sending out is that it's fine to prey on the desperate and needy just so long as you give others a fair chance to exploit their misery too.
The OFT has refereed the payday loans market to the Competition Commission, concerned at the way that different companies are interpreting credit laws. Invariably the more scrupulous companies are finding themselves at a competitive disadvantage.
The OFT also exposed the lies at the heart of the industry. With interest rates that can exceed 4,000 percent, the companies claim that their loans are strictly short-term and not the solution to long-term debt. Contradicting that, the regulating body discovered that the payday loans companies made up to half of their income from borrowers who had to extend their loans or pay additional late payment charges.
The OFT chief executive Clive Maxwell proved himself a master of expressing the patently obvious. "Competition appears not to be working properly in the payday lending market," he said, "allowing firms to profit from making loans that cannot be paid back on time. We have seen evidence of financial loss and personal distress to many people."
The final deadline for the lenders to clean up their act is the end of July. The OFT is still waiting for a response from 30 of the 50 lenders. The likelihood of the OFT being able to eliminate one of the most vicious symptoms of the recession is slim.
The High Street banks can hardly get too moralistic about payday loans companies rigging their market. Global banks like Barclays were caught doing much the same with the Libor rates and are still paying the fines.