Payday loan providers warned for misusing direct debits
14th April 2014
Payday loan providers have been misusing direct debits to change the date and the amount of repayments. The Office of Fair Trading is now set to clamp down on lenders and it has issued a warning to the companies.
At the moment there are a few pay day loans lenders who are attempting to take the money out of consumer accounts multiple times without arranging a date. This applies mainly to those who have defaulted on the loan. By using continuous authority, the Office of Fair Trading believes that this is a way in which lenders are avoiding credit checks at the beginning of the agreement.
The Office of Fair Trading have started by imposing requirements on the payday lender “Safeloans Limited”. The company offers loans from £50-£400. The company can now only take out money on the date that has been agreed in the loan agreement. This is unless the lender has arranged to take the money out with the borrower in advance. The repayment amount also cannot be changed unless it has been agreed with the borrower. Finally it will only be able to take money from the account that was signed up with Paydayok when the agreement was signed.
If the company breaks these rules then it could be fined £50,000 for every rule that it breaks. This will definitely cause payday loan lenders to think carefully before they attempt to take money without agreement! In some cases the credit license may even be revoked. A similar type of action was taken a few months ago against CIM Technologies Ltd. They were running under the name of Toothfairy Finance.
The Director of Consumer Credit at the Office of Fair Trading, Ray Watson, states:
“We have made it clear that we will not tolerate companies misusing repayment facilities and we will take action to ensure that unfair terms are not used. Those who offer payday loans must do so responsibly and in accordance with the expected standards.”
In addition, credit expert for Which? Martyn Saville, states:
“Payday loans are marketed at some of the most vulnerable consumers in society. Varying direct debit dates and amounts or making repeated attempts to take payment risks putting some individuals into even more difficult conditions, particularly if they then can’t pay priority debts such as rent or utilities. It’s good to see the OFT clamp down on these practices.”
It is worth noting that only a select few payday lenders try to take money after the loan has been defaulted without prior notice. Most lenders are responsible, but these new regulations will ensure that consumers are protected by the slightly more unreliable lenders. It is always a good idea to compare the different payday loans available. Look carefully at hidden fees and the terms and conditions associated with the loan agreement. Some lenders will charge quite high fees if you miss your repayment.
Overall this move is set to please consumers and credit and debt experts. If you have been affected by this type of problem then you should contact the Office of Fair Trading to report the lender.
24th March 2014