OFT cracks down on companies issuing payday loans

Find out what type of reforms to expect from the payday loan industry.

09:02 19 April 2013

Economic hardships can strike at any time and always seem to come at the worst of times. People may often find themselves with limited means to help themselves out of the detrimental situation, and may turn to short term and payday loansfor help.

 

Often the interest on these payday loans may be extreme and that can create more economic hardship to try and repay them.

 

Recently the Office of Fair Trading reported a host of issues identified within the payday loans industry and ordered the industry to clean up its act. Loan companies assured the OFT that they were already in the process of making changes that will benefit the customer. Among the expected changes are the following:

 

• Improved allowances for those who are having difficulty repaying the payday loans.

 

• Clear and well explained guidelines for customers that describe how the loan and repayment works.

 

• Cessation of some “aggressive” loan collection behaviours.

 

• Adherences to lending guidelines to ensure customers who cannot afford repayments are refused loans.

 

Though it appears that the excessive interest rates were not addressed, the other required improvements will help customers from falling unawares into financial traps that could escalate their already precarious financial situations.

 

The changes, for now, in the way the payday loans industry operates will definitely be a step in the right direction.

 

The OFT also has made it clear they will be trying to weed out payday loan entities which are not operating properly or ethically, and which are purposefully abusing the rights of their clients by refusing to properly educate applicants.

 

They also noted that many companies offering payday loans will need to follow the proper competitive pricing expectations, which will hopefully reign in the currently exorbitant interest rates and fees, without the need for more specific interest rate legislation.