The Office of Fair Trading (OFT) has today referred the UK's payday loan market to the Competition Commission for a market investigation. This will result in extensive evidence being ingathered with the Commission having the ultimate power to radically reform the way the payday lending industry behaves. For example, the Competition Commission's investigation into the selling of Payment Protection Insurance (PPI) resulted in a ban on UK banks from selling PPI alongside loans.
The OFT's own investigation into payday lending last year found that there was widespread consumer detriment and exploitation, an endemic failure for companies to adhere to existing legal rules and protections, with one in four loans not being paid back on time, incurring extra charges for roll-overs, with many consumers being entrapped with spiralling debts.
Govan Law Centre (GLC) welcomes the OFT's Competition Commission referral today but notes that it is not unlikely for the market investigation to take up to two years to reach its final stage, meantime UK consumers will continue to be exploited by usury payday lenders with interest rate charges, such as Wonga's, of 5,853% (APR).
GLC believes much more work needs to be done to tackle the failure of many payday lenders to comply with consumer credit law. In Scotland, the Scottish Government is in a prime position to intervene in this market by enabling credit unions to develop their services by offering accessible and fair 'payday loans', while using public education to warn people of the 'health hazard' of payday lenders. GLC would like to see the new full cost of credit capping power being targeted at this market once it becomes available.
The typical Competition Commission market investigation looks like this: