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UK consumer watchdog orders review of payday lenders

Payday lenders offer short-term loans in the UK which are intended to be paid back when borrowers get their wages
Payday lenders offer short-term loans in the UK which are intended to be paid back when borrowers get their wages

Britain's consumer watchdog has asked for a review into competition among payday lenders.

This comes after the Office of Fair Trading found evidence that a lack of choice means firms are profiting from loans that can not be paid back on time.

Payday lenders offer short-term loans, which are intended to be paid back when borrowers receive their wages.

But critics say they charge excessively high interest rates and take advantage of the vulnerable in a weak British economy where mainstream banks have cut back on short-term consumer lending.

"We have seen evidence of financial loss and personal distress to many people," said Clive Maxwell, chief executive of the Office of Fair Trading.

"The Competition Commission can now conduct a detailed investigation to get to the root causes and, if necessary, use its far reaching powers to fix the payday lending market,'' he added.

The OFT said it was difficult for customers to identify and compare the cost of loans, that not all firms complied with relevant laws and that a significant proportion of borrowers had poor credit histories and limited access to other forms of credit. It said lenders were competing primarily on the availability and speed of loans rather than on the price of paying them back.

In March, the OFT gave Britain's biggest 50 payday lenders 12 weeks to change their business practices or risk losing their licenses after finding evidence of widespread irresponsible lending. It said it had so far received responses from only 20 of the lenders, five of which have stopped offering the loans.

Consumer Group Which? said the industry, which lends about £2 billion sterling a year, was rife with poor practice. "People under financial pressure being given high-cost loans in minutes without proper affordability checks is a recipe for disaster," it said.