Booming payday lenders to face ban on 'rollover' loans: Celebrity-endorsed cash companies branded 'legal loan sharks' face curbs

A clampdown on controversial payday lenders is due this week by the Office of Fair Trading, with dozens expected to be reprimanded for their behaviour.
A report by the watchdog after a year-long investigation will centre on fears that many customers taking these expensive, short-term, unsecured loans of up to 4,000 per cent APR cannot repay them.
The OFT is expected to tackle the practice of ‘rolling over’ debt into larger loans, which means problems can spiral out of control.  
The market has exploded in the past four years as mainstream banks rein in lending. Payday loan specialists – often criticised as ‘legal loan sharks’ – have been quick to fill the vacuum.  
The OFT found that the majority of firms it visited during its investigation breached guidelines. Some  of the practices that were uncovered have already led to formal investigations into several individual companies.
It is not yet clear whether the OFT plans to ‘name and shame’ firms, but they are thought to include many household names.
Campaigners are hoping the clampdown will be severe. They argue that payday lenders operate in a largely unfettered market,  adding that major lenders and smaller opportunist outfits have descended on Britain as other countries, such as the US, keep them on a tight leash.

Damon Gibbons at the Centre For Responsible Credit said: ‘These companies make loans knowing that a significant proportion of consumers can’t pay them back. The ones that can cover that cost and allow the companies to make a healthy profit.
‘The OFT’s current guidelines are loose and a self-imposed industry code only really commits firms to following those loose guidelines.’
According to the firms, the number of borrowers unable to pay back loans within the agreed time is typically between 15 per cent and 20 per cent. This will mean they incur penalty fees on top of charges of up to £36 for a month-long loan of £100.

Promotion: TV presenter David Dickinson backs Dollar Financial's The Money Shop

The lenders say they are satisfying demand for quick, emergency loans and figures compiled by Financial Mail show huge increases in turnover at payday loan firms as desperate consumers struggle to find ways to make ends meet.
One of the largest three firms is American conglomerate Dollar Financial, which operates Payday Express and PaydayUK. Turnover from internet lending rose 22.3 per cent to £40.5 million in the three months to the end of December. The total turnover in that period is almost five times more than it was two years ago.

Vocal support: Nicholas Parsons did a voiceover for Wonga

However, it described this rate of growth – which many companies in the current tough economic climate could only dream about – as only ‘moderate’. It said regulatory scrutiny had forced it to ‘take a more conservative stance’ to lending during the period.
It complained that many smaller firms had taken advantage and moved in. However, the company said the situation would slow its business for only a few months and that growth would pick up again next year.
Such statements leave many campaigners sceptical that the OFT will go far enough to restrict lenders.
The watchdog says 240 loan firms operate in the UK. These include Dollar Financial’s giant US rival Cash America, which operates QuickQuid and Pounds To Pocket. Its revenues from the UK have increased from £26million in 2009 to £139million in 2011, the most recent data available.
In 2011, one of the best-known payday firms, Wonga, saw sales increase at a similarly eye-watering rate to £185million, which would make it the biggest payday lender.
According to the Treasury, a cap on interest rates that was passed in a Bill last November is unlikely to come in to force until the Financial Conduct Authority starts work in April 2014. The branch of the OFT concerned with consumer credit will be absorbed into the new watchdog.
‘We have legislated for the FCA to have the power to enforce a cap on interest rates if they see fit,’ said a Treasury spokesman.
‘It will also have the power to enforce a cap on other charges associated with taking out a loan
The new Archbishop of Canterbury, Justin Welby, has described the most expensive payday loans as ‘usury’. Financial Mail has reported almost 100 payday loan firms and loan-brokering sites to the OFT and the Advertising Standards Authority with concerns that they have breached rules.
National Debtline said complaints about payday firms doubled last year while the University of East London has banned the firms from advertising to students on its campus. The NUS said payday loans ‘often makes students’ financial situation worse rather than better’.
Smaller firms have proliferated in the past two years. Among them is CashLady, owned by Israeli husband and wife Avner and Michal Brodsky. They control PDB UK, which includes loan sites KwikCash, Fast Pony and Payday Bank. The owners will be expecting a boost to sales after paying singer Kerry Katona to front Cash Lady.
Other celebrities who promote payday firms include antiques expert and TV presenter David Dickinson, who backs Dollar Financial’s The Money Shop, and Nicholas Parsons, former presenter of Sale Of The Century and currently Radio 4’s Just A Minute, who was employed to do a voiceover for Wonga.  
Other recent entrants include Swift Sterling, a subsidiary of Northway Broker, which has an office on the Isle of Man and headquarters in Malta. Both are tax havens.
Peachy Loans, registered as Cash On Go Limited, is linked to Momo Capital in Tallinn, Estonia, and includes Russian and Estonian nationals on its board.

Battling MP warns of crisis point this year

Fears: MP Stella Creasy

The MP spearheading the campaign to curb payday lending has warned of a ‘crisis point’ this year as economic pressures mount on communities.
Stella Creasy, Labour member for Walthamstow in North East London, has told Financial Mail that reductions in benefits, rising taxes and an increase in the cost of living may force people to consider taking out toxic loans that they cannot pay back. She hoped the Office of Fair Trading would take drastic action in its report this week.
But she added: ‘I am concerned this is only going to give us the illusion of progress.
‘I think the Government is being naive or lazy and that it doesn’t really understand the way companies in this market work.’
Payday lenders argue they do not like customers that cannot free themselves from debt  and use the loans only  for emergencies.
But Creasy said there was increasing evidence that payday firms made significant portions of their profit from small numbers of regular borrowers under extreme financial pressure.
A study in the US found that the average payday borrower takes 11 loans a year.
Creasy said: ‘This is a worrying time. It is this year that the pressure will rise to crisis levels in communities like mine with taxes rising, benefits falling and cost of living going up.’
Creasy wants the Office of Fair Trading to define what level of interest rates should be regarded as detrimental to consumers and to require lenders to report lending in real time so that debt can be tracked.