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
Show Hide image

What I learnt when my wife and I went to Brexit: the Musical

This week in the media, from laughing as the world order crumbles to what Tristram Hunt got wrong – and Leicester’s big fall.

As my wife and I watched Brexit: the Musical, performed in a tiny theatre above a pub in London’s Little Venice, I thought of the American novelist Lionel Shriver’s comment on Donald Trump’s inauguration: “A sense of humour is going to get us through better than indignation.” It is an entertaining, engaging and amusing show, which makes the point that none of the main actors in the Brexit drama – whether supporters of Leave or Remain – achieved quite what they had intended. The biggest laugh went to the actor playing Boris Johnson (James Sanderson), the wannabe Tory leader who blew his chance. The mere appearance of an overweight man of dishevelled appearance with a mop of blond hair is enough to have the audience rolling in the aisles.

The lesson we should take from Brexit and from Trump’s election is that politicians of all shades, including those who claim to be non-political insurgents, have zero control of events, whether we are talking about immigration, economic growth or the Middle East. We need to tweak Yeats’s lines: the best may lack all conviction but the worst are full not so much of passionate intensity – who knows what Trump or Johnson really believe? – as bumbling incompetence. The sun will still rise in the morning (as
Barack Obama observed when Trump’s win became evident), and multi­national capital will still rule the world. Meanwhile, we may as well enjoy the show.

 

Danger of Donald

Nevertheless, we shouldn’t deny the risks of having incompetents in charge. The biggest concerns Trump’s geopolitical strategy, or rather his lack of one. Great power relations since 1945 have been based on mutual understanding of what each country wants to achieve, of its red lines and national ambitions. The scariest moments come when one leader miscalculates how another will react. Of all figures in recent history, the Soviet leader Nikita Khrushchev, with his flamboyant manner and erratic temperament, was probably the most similar to Trump. In 1962, he thought President Kennedy, inexperienced and idealistic, would tolerate Soviet missiles in Cuba. He was wrong and the world only narrowly avoided nuclear war.

How would Trump respond to a Russian invasion of the Baltic states? Will he recognise Taiwan as an independent country? Will he scrap Obama’s deal with Iran and support a pre-emptive strike against its nuclear ambitions? Nobody knows, probably not even Trump. He seems to think that keeping your options open and your adversaries guessing leads to “great deals”. That may work in business, in which the worst that can happen is that one of your companies goes bankrupt – an outcome of which Americans take a relaxed view. In international relations, the stakes are higher.

 

Right job, wrong time

I rather like Tristram Hunt, who started contributing to the New Statesman during my editorship. He may be the son of a life peer and a protégé of Peter Mandelson, but he is an all-too-rare example of a politician with a hinterland, having written a biography of Engels and a study of the English Civil War and presented successful TV documentaries. In a parallel universe, he could have made an inspirational Labour leader,
a more thoughtful and trustworthy version of Tony Blair.

No doubt, having resigned his Stoke-on-Trent Central seat, he will make a success of his new job as director of the Victoria and Albert Museum. If nothing else, he will learn a little about the arts of management and leadership. But isn’t this the wrong way round? Wouldn’t it be better if people first ran museums or other cultural and public institutions and then carried such experience into parliament and government?

 

Pointless palace

When the Palace of Westminster was largely destroyed by fire in 1834, thousands gathered to enjoy the spectacle. Thomas Carlyle noted that the crowd “whew’d and whistled when the breeze came as if to encourage it” and that “a man sorry I did not anywhere see”.

Now, with MPs reportedly refusing to move out to allow vital renovation work from 2023, we can expect a repeat performance. Given the unpopularity of politicians, public enthusiasm may be even greater than it was two centuries ago. Yet what is going through MPs’ minds is anyone’s guess. Since Theresa May refuses them a vote on Brexit, prefers the Foreign Office’s Lancaster House as the location to deliver her most important speech to date and intends to amend or replace Brussels-originated laws with ministerial orders under “Henry VIII powers”, perhaps they have concluded that there’s no longer much point to the place.

 

As good as it gets

What a difference a year makes. In January 2016, supporters of Leicester City, my home-town team, were beginning to contemplate the unthinkable: that they could win football’s Premier League. Now, five places off the bottom, they contemplate the equally unthinkable idea of relegation.

With the exception of one player, N’Golo Kanté (now at Chelsea), the team is identical to last season’s. So how can this be? The sophisticated, mathematical answer is “regression to the mean”. In a league where money, wages and performance are usually linked rigidly, a team that does much better than you’d predict one season is likely to do much worse the next. I’d suggest something else, though. For those who won last season’s title against such overwhelming odds, life can never be as good again. Anything short of winning the Champions League (in which Leicester have so far flourished) would seem an anti­climax. In the same way, the England cricket team that won the Ashes in 2005 – after the Australians had dominated for 16 years – fell apart almost as soon as its Trafalgar Square parade was over. Beating other international teams wouldn’t have delivered the same adrenalin surge.

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 19 January 2017 issue of the New Statesman, The Trump era