The payday loan industry, which includes Wonga, PaydayUK and QuickQuid, is worth £2 billion and is now subject to an inquiry by the competition commission. Concerns have been raised over the last few years over the way it treats vulnerable borrowers.
The industry has focused on the speed with which money can be deposited in accounts, rather than affordability and the high cost of these type of loans. The Office of Fair Trading (OFT) has been investigating the industry since 2012 and identified that a quarter of short-term loans are not paid back on time.
Following criticism from the House of Commons public accounts committee, the OFT has referred the industry to the commission.
The competition commission has the power reform the way industries operate and has already done so with prohibiting the selling of payment protection insurance alongside loans.
Stella Creasy, Labour MP for Walthamstow, has been an active campaigner on this issue and in January told Blue & Green Tomorrow, “Reports and research continue to show these companies [are] targeting vulnerable consumers in Britain […] we must be vigilant in keeping up the fight to end legal loan sharking in 2013.”
Clive Maxwell, chief executive of OFT, said, “Competition appears not to be working properly in the payday lending market, 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.”
Chief executive of the payday loan industry body the Consumer Finance Association, Russell Hamblin-Boone, said the inquiry was premature and that “no other sector has faced such intense scrutiny in such a short space of time.”
Meanwhile, Richard Lloyd, executive director of consumer group Which?, said, “Many households are increasingly reliant on payday loans to pay for essentials or clear existing debts. The Financial Conduct Authority (FCA) takes over regulation of consumer credit next year, providing a unique opportunity to clean up this market.”
The FCA begins its regulation of the sector in April 2014. Jo Swinson, the government’s consumer minister, is meeting the industry players, charities and watchdogs next week.