Regulator offers ‘feeble excuses’ for payday loan failures
Back in March, the Office of Fair Trading supposedly came down heavy on the 50 worst-offending Payday lenders, giving them 12 weeks to clean up their act or face having their licenses revoked.
Yet by Tuesday’s deadline this week, only “three or four” had managed to submit their reports to the regulator for inspection, a spokesman told me. How can the OFT expect politicians and the public to take it seriously when it can’t even enforce its own deadline on these lenders, never mind take punitive action to reign them in?
The OFT responds to this criticism by saying each report – which has to be independently verified – is 70 or more pages long and therefore requires a huge amount of time and effort to sift through.
It simply doesn’t have the resources, it says, to get all the lenders’ responses in at once and go through them.
Why, then, did it bother to set the deadline in the first place? I’m sorry, but that’s a pretty feeble excuse.
The more likely scenario, I’m afraid, is that the lenders have dragged their heels and the regulator, true to form, has rolled over and not been tough enough. Lo and behold the deadline has now been pushed back to August 1 – nine weeks later than planned.
But what’s nine weeks in regulator world?, I hear you ask. Regulators are famous for slipping up on deadlines. You only have to look at the painfully slow progress of the Financial Conduct Authority’s scheme to compensate those mis-sold interest-rate-swaps for recent evidence of that.
But what’s so alarming about the OFT’s tardiness is the speed with which the payday loans industry is growing up around it, largely unchecked.
Just this week, the Citizens Advice Bureau warned of a sinister expansion of lenders’ activities, pushing loans to under 18’s, to those with mental health problems and to vulnerable individuals like drunks. It says the industry is now “out of control”, preying on consumers who are desperate for cash as banks tighten their grip on lending.
Meanwhile the Money Advice Trust said its national debtline received 20,013 calls about payday loans last year, double the previous year, and a huge increase from the 465 calls in 2007.
And let’s not forget the most staggering figure of all. That in 2011-2012, £176bn was lent to consumers, making Britain’s consumer credit market one of the largest in Europe – and growing.
The OFT’s response seems to be that it can’t act pre-emptively, and the lenders have “got to have done something wrong for us to act”.
But how much evidence does it need? On that basis is it any wonder that just three lenders of the 50 the regulator’s targeting have so far surrendered their licenses, while the OFT says it’s separately launched three further investigations.
So, six possible license revocations. And remember, not a single fine among them either.
Yes the OFT’s fees are too small – big lenders pay the same paltry £1,075 as the small guys – but isn’t that just a matter of putting the price up? No excuse seems to exonerate the OFT here.
You have to empathise with Margaret Hodge’s assertion that the OFT has been ineffective and timid. Actually, that’s quite polite for her.
According to the National Audit Office, unscrupulous lending, not just payday, but credit cards and personal loans, is estimated to cost consumers at least £450 million a year. Yet the OFT has failed to proactively identify the risks, Mrs Hodge says, relying instead on complaints from consumers and information from other third parties.
The OFT has issued what it’s called a “robust defence” of its record on Payday loans. But if that defence is so robust why will it not agree to be interviewed on either TV or radio?
So what next? If the regulator isn’t the looming force it should be, perhaps a referral to the Competition Commission will be enough to make the payday lenders pull their socks up.
The OFT is due to announce its decision on whether to refer the industry to the Commission June. That is, of course, unless that deadline slips too.
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