Payday loans have long had a dubious reputation, even when their lenders were claiming they were a viable means of getting out of short-term debt. The lenders were often compared to old-fashioned loan sharks, but the shoe is now on the other foot, with the payday lenders themselves under intense scrutiny.
A Year-Long Investigation
The government has carried out a full investigation via the Office of Fair Trading and found that many payday lenders are not adhering to the law and wrecking customer finances in the process. Many of these firms now face closure, with the worst set to be charged with breaking the law as part of a broader clean-up plan of the payday loan industry’s advertising practices.
The measures will fall within a broader package of actions designed to stop unscrupulous lenders from seeking out customers who are at their most vulnerable at their time of need. The measures are likely to include regulations that prevent loans from being rolled over, which can lead borrowers into an ongoing cycle of financial difficulty.
New Protective Powers
The watchdog recently gained new powers which also now allow it to suspend the lending licence of errant firms in order to protect customers. Affordability criteria will also come under scrutiny, and lenders will be prevented from employing hard-line tactics on those who cannot repay on time.
Advertising practices will include measures to ensure health warnings are included to fairly warn consumers of the risks they are taking when choosing to borrow via payday loans. Those found to be skirting the line will be called in to discuss practices with the regulator and given a warning so that they have the opportunity to clean up.
In the meantime, other and better forms of financial support exist to deal with debts, such as IVA arrangements. Customers who look to explore an IVA through Carrington Dean find that this scheme can offer them a manageable and helpful means of genuinely dealing with their debt rather than entering into a new cycle.
In the meantime, payday lenders can expect to come under increasing scrutiny and face potential penalties as regulators get stricter and less inclined to tolerate poor practices. The message is clear: financial practices are changing, and the government’s patience with payday lenders has worn thin.