OFT clamps down on payday loan providersRegulator warns against abuse of direct debits
14 February 2011
The Office of Fair Trading (OFT) today warned payday lenders that they must not misuse direct debit facilities to vary the amount or date of a loan repayment.
The warning follows the OFT's decision to impose requirements on payday lender Safeloans Limited, trading as Paydayok.
Direct debit facilities are used by some payday lenders to give them greater control over the repayment of the short-term loan. This means that if a borrower defaults on the loan, the lender can make multiple attempts to take money from the borrower's account without agreeing specific amounts or dates with the consumer.
The OFT believes that some lenders use this 'continuous authority' as a way to bypass proper checks on a borrower's ability to repay.
If you wish to cancel a continuous payment authority with your bank, this letter template can help.
Safeloans Limited must reform its loan practices
Safeloans Limited typically offers same-day loans of £50-£400 on a short-term basis. The requirements now imposed by the OFT on the company state that it must:
- only take money from the borrower's account on the date or dates set out in the loan agreement, unless otherwise agreed with the borrower in advance
- not change the repayment amount unless this has been specifically agreed with the borrower in advance
- only take money from an account specifically given to Paydayok for the repayment of that loan
Failure to comply with requirements can lead to a fine of up to £50,000 per breach, or action to revoke a company's credit licence. The requirements imposed on Paydayok follow similar action announced last month against CIM Technologies Ltd, trading as Toothfairy Finance.
Payday loan providers must act responsibly
Ray Watson, the OFT's Director of Consumer Credit, said: 'We have made it clear that we will not tolerate companies misusing repayment facilities and we will take action to ensure that unfair terms are not used. Those who offer payday loans must do so responsibly and in accordance with the expected standards.'
Which? credit expert Martyn Saville added: ‘Payday loans are marketed at some of the most vulnerable consumers in society. Varying direct debit dates and amounts or making repeated attempts to take payment risks pushing some individuals into even more difficult conditions, particularly if they then can't pay priority debts such as rent or utilities. It's good to see the OFT clamp down on these practices.'
Which? advice on the best ways to borrow
Struggling to pay back a payday loan? Read our expert guide to your rights.
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