By a Newsnet reporter
Payday loan companies are spiralling “out of control”, according to new research by Citizen’s Advice, as UK regulatory systems prove incapable of ensuring that financial companies act responsibly and in the public interest.
The new research has led the SNP to make a renewed call for the Office of Fair Trading (OFT) to act immediately and regulate the firms offering debt, while pointing out that an independent Scotland would have the power to regulate financial services companies adequately.
The findings in the research have shown that high interest loans are being offered to people under18, people with mental health issues and even people under the influence of alcohol, which is fuelling debt and misery among the vulnerable in our communities.
Companies were also found to carry out inadequate checks on borrowers, in some instances companies chased people for debts when the loan had actually be taken out by someone else using their identity. Companies were also found to have misused the Continuous Payment Authority by persistently raiding customers’ bank accounts without warning, often leaving the customer without adequate funds to live on.
During the six month period in which the study was carried out, 24,575 people sought advice about payday loans from Citizens Advice.
The issues around payday loan companies are the latest in a series of scandals in the UK financial services sector, which critics say are due to the inadequate regulatory regimes introduced by successive UK governments.
The OFT is expected to announce next month whether it will refer the payday market to the Competition Commission for investigation.
The trading watchdog, the OFT, handed 50 payday lenders a 12-week deadline in early March to prove their good behaviour or risk losing their licences, which they need in order to trade.
Citizens Advice wants the OFT to immediately ban payday lenders which are causing harm to borrowers.
Citizens Advice Chief Executive Gillian Guy said:
“The payday loan industry is out of control and is acting as 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.
“The OFT has an opportunity to wipe out the distress caused by this industry and make sure it is transformed into a responsible short-term credit market. It is vital that, following the investigation, the OFT takes swift action to protect consumers from the harm caused by these unscrupulous lenders.”
SNP MSP John Mason, Deputy Convener of Holyrood’s Finance Committee, said:
“This disturbing report reveals the callous exploitation of the weak and vulnerable and proves that action is needed to regulate the consumer credit industry to protect people and their families.
“Austerity UK is causing real economic pain for so many people on low incomes; it is sickening that this is being exploited by unscrupulous payday loan firms.
“The UK government must act now and instruct the OFT to deliver a set of regulations that are fit and appropriate to the economic crisis which is largely of their own making.
“Only a Yes vote in September 2014 will deliver the powers of independence which will give Scotland the ability to do more to tackle this and build a fairer and more equal society.”