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Action needed over ‘out of control’ payday loan lenders

New report reveals many payday lenders are guilty of irresponsible lending

Loan written in Scrabble tiles

The OFT has uncovered evidence of irresponsible lending among payday loan companies (image courtesy of

Tougher sanctions are needed to prevent “out of control” payday loan lenders from exploiting vulnerable customers for their own benefit, industry commentators have claimed.

It comes after a new report from Citizens Advice revealed that many payday lenders are guilty of irresponsible lending and harassment of customers – flaunting sector guidelines in the process.

The research revealed that some loans had been provided to people aged under 18, others with mental health issues, and even people who were drunk – leading to calls for the Office of Fair Trading (OFT), which regulates the industry, to fine and ban and fine those found guilty of bending or even ignoring the rules.

Breaking the rules

In the 780 cases analysed by Citizens Advice, it found instances of lenders hounding the wrong people for debts, some taking on more than they were actually owed, and others taking regular repayments from those who were finding it very difficult to pay.

For many people, payday loans provide a fast, short-term cash boost for a defined or limited period and can be helpful to those who have the means to pay it back, but the figures show that these ideals are not being realised by some unscrupulous lenders.

Examples of some companies pestering people in debt and failing to offer reasonable repayment plans have led commentators to call for the OFT to take a tough stance against guilty parties.

Although it had written to the biggest 50 firms, giving them 12 weeks to change their practices or risk losing their licences, more needs to be done to protect vulnerable consumers, critics say.

Out of control

The OFT said it is considering whether to refer the market to the Competition Commission to assess how lenders compete, but Gillian Guy, the chief executive of Citizens Advice, said it is clear that the payday loan industry is “out of control” and “a law unto itself”.

“It has showed a complete disregard for its customers. Many have been driven into debt by irresponsible lending and their debts ballooned as lenders put pressure on them to extend the loans,” she explained.

It is vital that the OFT now takes swift action to protect consumers from the harm caused by unscrupulous lenders and “wipes out the distress” present among those who have been badly treated by lenders, Ms Guy added.

Tightening the squeeze

Her comments were echoed by Michael Ossei, personal finance expert at, who said the findings illustrate that some lenders will stop at nothing to “squeeze as much as they can” out of consumers who cannot afford to repay them, or were in no fit state to take out the loan in the first place.

“Worrying numbers of people are being hung out to dry by payday loan companies at a time when they often need professional support to help them resolve their financial difficulties,” he explained.

The proliferation of payday loans adverts on the TV, radio and internet means that they are now easier to access than ever before, but people need to realise that lenders will not provide a long-term solution to their problems.

Shared responsibility

The fact that payday loans are a short-term fix needs to be made clearer to customers – which is the responsibility of the lenders themselves, as well as the industry regulators, he suggested.

“Unfortunately it is often the young or the financially vulnerable that are lured in, with insufficient funds to repay their loans. This highlights the mounting need for more responsible advertising – with the consequences of not meeting repayments made clearer,” Mr Ossei explained.

Ultimately, the regulator needs to do more to ensure that companies are abiding by the rules and consumers are getting a fair deal, with terms and conditions laid out to them in a clear fashion.

Mr Ossei concluded: “It’s vital that the OFT clamps down quickly on the irresponsible players in the market and provides the necessary legislation to bring them firmly back in line with other lending practices.”

A fully regulated market would ensure that payday loans are used for their key purpose – to provide a short-term cash injection to those who have the means to pay it back – and ensure that consumers no longer have to suffer.