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.
 

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The Prevent strategy needs a rethink, not a rebrand

A bad policy by any other name is still a bad policy.

Yesterday the Home Affairs Select Committee published its report on radicalization in the UK. While the focus of the coverage has been on its claim that social media companies like Facebook, Twitter and YouTube are “consciously failing” to combat the promotion of terrorism and extremism, it also reported on Prevent. The report rightly engages with criticism of Prevent, acknowledging how it has affected the Muslim community and calling for it to become more transparent:

“The concerns about Prevent amongst the communities most affected by it must be addressed. Otherwise it will continue to be viewed with suspicion by many, and by some as “toxic”… The government must be more transparent about what it is doing on the Prevent strategy, including by publicising its engagement activities, and providing updates on outcomes, through an easily accessible online portal.”

While this acknowledgement is good news, it is hard to see how real change will occur. As I have written previously, as Prevent has become more entrenched in British society, it has also become more secretive. For example, in August 2013, I lodged FOI requests to designated Prevent priority areas, asking for the most up-to-date Prevent funding information, including what projects received funding and details of any project engaging specifically with far-right extremism. I lodged almost identical requests between 2008 and 2009, all of which were successful. All but one of the 2013 requests were denied.

This denial is significant. Before the 2011 review, the Prevent strategy distributed money to help local authorities fight violent extremism and in doing so identified priority areas based solely on demographics. Any local authority with a Muslim population of at least five per cent was automatically given Prevent funding. The 2011 review pledged to end this. It further promised to expand Prevent to include far-right extremism and stop its use in community cohesion projects. Through these FOI requests I was trying to find out whether or not the 2011 pledges had been met. But with the blanket denial of information, I was left in the dark.

It is telling that the report’s concerns with Prevent are not new and have in fact been highlighted in several reports by the same Home Affairs Select Committee, as well as numerous reports by NGOs. But nothing has changed. In fact, the only change proposed by the report is to give Prevent a new name: Engage. But the problem was never the name. Prevent relies on the premise that terrorism and extremism are inherently connected with Islam, and until this is changed, it will continue to be at best counter-productive, and at worst, deeply discriminatory.

In his evidence to the committee, David Anderson, the independent ombudsman of terrorism legislation, has called for an independent review of the Prevent strategy. This would be a start. However, more is required. What is needed is a radical new approach to counter-terrorism and counter-extremism, one that targets all forms of extremism and that does not stigmatise or stereotype those affected.

Such an approach has been pioneered in the Danish town of Aarhus. Faced with increased numbers of youngsters leaving Aarhus for Syria, police officers made it clear that those who had travelled to Syria were welcome to come home, where they would receive help with going back to school, finding a place to live and whatever else was necessary for them to find their way back to Danish society.  Known as the ‘Aarhus model’, this approach focuses on inclusion, mentorship and non-criminalisation. It is the opposite of Prevent, which has from its very start framed British Muslims as a particularly deviant suspect community.

We need to change the narrative of counter-terrorism in the UK, but a narrative is not changed by a new title. Just as a rose by any other name would smell as sweet, a bad policy by any other name is still a bad policy. While the Home Affairs Select Committee concern about Prevent is welcomed, real action is needed. This will involve actually engaging with the Muslim community, listening to their concerns and not dismissing them as misunderstandings. It will require serious investigation of the damages caused by new Prevent statutory duty, something which the report does acknowledge as a concern.  Finally, real action on Prevent in particular, but extremism in general, will require developing a wide-ranging counter-extremism strategy that directly engages with far-right extremism. This has been notably absent from today’s report, even though far-right extremism is on the rise. After all, far-right extremists make up half of all counter-radicalization referrals in Yorkshire, and 30 per cent of the caseload in the east Midlands.

It will also require changing the way we think about those who are radicalized. The Aarhus model proves that such a change is possible. Radicalization is indeed a real problem, one imagines it will be even more so considering the country’s flagship counter-radicalization strategy remains problematic and ineffective. In the end, Prevent may be renamed a thousand times, but unless real effort is put in actually changing the strategy, it will remain toxic. 

Dr Maria Norris works at London School of Economics and Political Science. She tweets as @MariaWNorris.