The largest consumer watchdog in the UK, the Office of Fair Trading (OFT), has given fifty of the largest payday lenders in the UK three months to either change their business practices or risks the loss of their licences. The OFT came to this decision after finding a large amount of evidence that points to irresponsible lending practices.
Most payday lenders offer short term loans which in theory are supposed to be paid back once a borrower gets their wage for the week. However, they are criticised for carrying with them very high interest rates and the fact that they take advantage of those with a weakened economic status.
In response to the problem, the OFT has asked that the payday lending market be looked over by the Competition Commission in order to conduct a thorough investigation of the problems that exist in the high interest rate loan business.
OFT Chief Executive, Clive Maxwell explained that they found many problems with the fundamental operation of the payday market and that in many cases the lenders are in violation of many regulations and laws. The result is that many borrowers end up facing hardships from large debts they cannot get out from under.
The OFT estimates that about 1.2 million Britons took payday loans out in 2012 borrowing a total of about two billion pounds using these short term loans. British lender Wonga, almost tripled its earnings last year because its APR is a whopping 4,214%.
Wonga stated that it is aware of the OFT concerns and also agreed that there should be more regulation and tighter control of the payday loan market in order to stop some of the unfair practices of the industry. They defended themselves by stating that they turn down about 66% of applicants and perform tough checks on every loan applicant.