30 July 2008
The Office of Fair Trading (OFT) is to launch an investigation into payday loans - short-term personal loans designed to tide consumers over until their next pay packet arrives. A year-long study into lending practices and interest rates will be carried out by the regulator to ensure personal loan customers are getting a fair deal. Payday lenders typically offer loans of up to £1,000 for consumers struggling to make ends meet ahead of the next pay day. Companies offering payday loans are, like personal loan providers, regulated by the Financial Services Authority. The OFT has said its investigation into the industry forms part of a wider probe into responsible lending. Payday loan providers have come in for criticism from some consumer bodies because of the high annual percentage rates (APRs) they charge, which are often in excess of 1,000%. But Geoff Holland, Chief Executive of the British Cheque Cashers Association, told the Guardian it is misleading to talk about APRs in terms of money that is borrowed over such a short period of time. Figures from the Bank of England show that net lending on personal loans and other advances rose by £0.4 billion in June.
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