It is fairly well known across the consumer market that interest rates for borrowing money through payday loan firms can be as high as 4,000%, and today the Office of Fair Trading (OFT) has announced that the top firms need to clean up their act or face closure. The OFT believes that there are serious problems around the behaviour of these lenders and that they are not complying with the standard guidelines.The payday loan industry is worth around £2billion and these allegations are expected to affect 90% of the firms involved. These firms make the majority of their revenue out of individuals
who have got into financial difficulty and have come to rely on the lenders over the longer term. This has increased dramatically during the recent tough economic times, with many families coming to rely heavily on short term loans as a direct result of the limited lending by banks.While the OFT has stated that firms needs to improve their offering and become more responsible, the government as a whole has been challenged to cap the level of interest rate that payday loan firms can charge. However, they have so far refused to instigate a ceiling. The industry has argued that by doing this, many of the top lenders would be forced to close and this would lead consumers overseas to less secure lending by international counterparts.Some of the additional ideas include further regulation on the advertising of these businesses, such as restricting the times they can appear and a how many adverts can run as well as the creation of a new watchdog for the industry, the Financial Conduct Authority. The new Financial Conduct Authority will have the ability to impose fine and set caps on interest rates and force companies to pay compensation to consumers where it feels it would be appropriate.The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Setfords Solicitors are a national full service law firm, with dispute resolution solicitors in Bath and across the country.