OFT writes to 240 payday lenders to warn them over poor practices

The legal loan sharks have been cautioned.

After publishing further guidance on debt collection, the Office for Fair Trading (OFT) has now written to all 240 payday lenders operating in the UK after starting an investigation in February 2012 to investigate how lenders carry out debt repayments after it was revealed there were "emerging concerns" over poor practice. 

The guidance by the OFT clarifies what is expected when using continuous payment authority (a method of payment via debit or credit card to a company one wishes to make regular payments to) to recover debts, and it is high time guidance was clear on this issue.

Many companies have been found to use tactics that could very well be described as bullying and intimidation. Even well-known lenders like Wonga were warned by the OFT to stop sending letters to its customers accusing them of committing fraud

The worst example of debt recovery from a payday lender I have heard of is from the company CIM Technologies Ltd, also known as Tooth Fairy Finance. Action was taken on them by the OFT in 2010 to stop them from taking advantage of continuous payment authority but varying the repayment dates for loans taken out and the amount payable on each installment.

On a post written up on the Credit Action Group forum, one member writes what it was like being a customer of Tooth Fairy. After taking out a loan of £100, failing to meet a payment and having requests of an extended payback period fall on deaf ears, the person alleges that Tooth Fairy then decided to:

  • [Call] my home number on a daily basis leaving information regarding who they are and my private account with them, that is that I have an outstanding loan and how much it was for, leaving the information open to third parties.
  • [Send] me various emails each day telling me that they are adding fines to my loan.
  • [Threaten] me with bailiffs and bankruptcy – for a £100 loan? I don’t think so. They also said they would send bailiffs to all known addresses to collect goods up to nine times the value of the debt.
  • [Tell] me they have passed my file to a solicitor and they are charging me £150 for this to be done. I have not heard from any solicitor or any debt collection agency (West Yorkshire Security Debt Collections) whom they say they have also consulted with.

Another post on the group claims that the borrower would hear nothing from the company for weeks, even while charges were still clocking up, and that Tooth Fairy avoided going through normal procedures of lateness charges or debt plans.

But better debt collection methods is just one element of the wider concern about how the payday lending industry is regulated.

David Fisher, director of consumer credit at the OFT, said earlier this year that he hoped the Financial Conduct Authority (or FCA – which will eventually replace the OFT in responsibility of consumer credit regulation) would bring the prospect of greater regulation, as at present there is “a very light-touch regime”. 

Though even getting close to this is proving problematic as efforts are still being made to add an amendment on the Financial Services Bill to give the FCA power to cap the total cost of credit. Until such regulatory common sense is considered then lenders will still have free terrain over vulnerable consumers. 

Update

A representative of Web Loans Processing, the parent company of Toothfairy Finance, has asked us to clarify a couple of points in the article. We are happy to do so, and to note that the Financial Ombudsman has not ruled against Toothfairy with regards to any non-paying clients:

The Article makes comments regarding bailiffs, solicitors, added fees and regular contact with customers via email and phone; a little research would have quickly identified all this as standard practice when bailiffs are recovering debt, even for high street banks.

Further, maintaining regular and consistent contact with clients is a requirement of any credit licence. Toothfairy Finance works with its customers and we are happy to discuss any questions or issues they may have. For direct help, please email us.

 
A shark. Not a loan shark. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

Getty Images.
Show Hide image

Could tactical voting stop Brexit?

Could tactical votes soften the Brexit blow?

Could tactical voting save Britain from the hardest of exits from the European Union?

That's the hope of Open Britain, which has unveiled a list of 20 seats held by supporters of a hard Brexit (19 Conservatives and one Labour MP, Kate Hoey) in areas that either split evenly in the referendum or backed a Remain vote, and a list of 20 seats held by pro-Europeans: among them Labour MPs Pat McFadden and Liz Kendall, Liberal Democrat MPs Nick Clegg and Tom Brake, and Caroline Lucas, the Greens' sole MP. (Read the full list here.)

"Remain group seeks to oust pro-Brexit MPs" is the Guardian's splash. The intiative has received the thumbs up from Peter Mandelson on Newsnight and Tony Blair in the Guardian. But will it work?

A quick look at the seats in question shows the challenge for anyone hoping for a pro-European front to frustrate Brexit. Theresa Villiers has a majority of more than 7,000 over Labour: and if you're a voter in Chipping Barnet who backed a Remain vote because you were worried about your house price, is Jeremy Corbyn really the answer to your problems? (That said, it's worth noting that thanks to the scale of the 2015 defeat, Chipping Barnet is one of the seats Labour would have to win to get a majority in the House of Commons.)

Or take, say, Kate Hoey in Vauxhall, one of the few people in Labour who can claim to be a unifying figure these days. Yes, she is deeply unpopular in her local party who have mounted several attempts to remove her. Yes, Vauxhall voted heavily to Remain. But - as Jessica Elgot finds in her profile for the Guardian- it also has a large amount of social housing and has more children living in poverty than all but 51 other seats in the House of Commons. There are a great number of people who believe their own interests are better served by sending a Labour MP to Westminster rather than refighting the referendum.

That's a reminder of three things: the first is that the stereotype of the Remain vote as people straight out of the Boden catalogue misses a number of things. The second is that for many people, Brexit will take a back seat.

But the big problem is that you can't make an anti-Brexit - which, by necessity, is essentially an anti-Conservative - alliance work if the main anti-Conservative party is so weak and unattractive to most people. "Voting pro-European" may give Labour's Corbynsceptics a way to advocate a vote for Labour that doesn't endorse Jeremy Corbyn. That doesn't mean it will succeed in stopping Brexit.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

0800 7318496