According to a recent report payday loans are to be officially probed and investigated by the government watchdog, the Office of Fair Trading. These loans are short term loans that are provided to those in employment to tide them over until payday comes around. The investigation forms part of a wider investigation into responsible lending practices. A year long study is to be launched into lending practices by the OFT, and this will include a review of payday loans.
Payday loans are well known for the high rates of interest that are charged on the personal loans, and an example given was one payday loan firm that offered loans of up to £750 at rates that were equivalent to 1576.6%. Worryingly many people are turning to shorter term loans such as these, where no credit check is required, due to the tighter credit conditions that have come into play since the onset of the global credit crunch, which has made it difficult for some to get loans from other sources.
An official from the OFT said that at present the study was designed to look at ‘what constitutes responsible lending under the Consumer Credit Act and how this affects companies’ holdings of consumer credit licences’. However, a number of debt campaign groups have been piling on the pressure when it comes to investigating payday loans, expressing concerns over the high rates of interest charged. Speaking about the OFT one debt campaigner said: ‘We believe there is a lot more they could be doing to curb the worst excesses of the payday industry.’
An official from the payday loan industry said it was misleading to talk about APRs on these loans because they were such short term loans. He said: ‘It just doesn’t make sense quoting those huge APRs. The loans would never get that large, mainly because the borrower would never be able to pay them back.’