MPs to grill payday loan firms

MPs will grill payday loan companies today as part of a government crackdown on the short-term lending sector.

Representatives from Wonga, QuickQuid and Mr Lender – three of the biggest payday lending firms – will appear before the Business, Innovation and Skills Select Committee.

MPs are expected to follow up on a damning report by the Office of Fair Trading that found “deep-rooted” problems in the way payday loans attract and treat customers.

Lenders have come under intense scrutiny from the Competition Commission and the Financial Conduct Authority (FCA) since the report was published in September amid reports of widespread impropriety in the sector.

The committee hearing pre-empts the transferral of regulatory powers in the consumer credit market from the Office of Fair Trading to the FCA on April 1, 2014. The new body, which came into being in April this year, has promised to strengthen protection for consumers.

To do so, it has been equipped with the power to impose unlimited fines and compel businesses to give people their money back when they have lost out due to poor treatment.

New curbs proposed by the body in October will force lenders to place “risk warnings” on their promotions and advertising, urging consumers to “think” before taking out a payday loan.

Richard Lloyd, the executive director of Which?, will also appear before the committee today. He welcomed the FCA’s new role but said “the Government and regulators must go further to clean up the wider credit market”.

Wonga’s appearance at the committee comes after Niall Woss, Chief Operating Officer at the company, defended their practices on Newsnight last night. He said: “The vast majority of our customers are not presented. We think the voice of the silent majority of our customers is not being heard; the voice of the people who actually use our service.

“There are a million customers, the vast majority of whom are happy and their voice is not being heard.

“I’m very confident that we show everything [about our service] as clearly and transparently as we possible can. I’m sure the regulators will take the opportunity to tighten up practices across all of the industry.”

“The reality is that if people don’t pay back the money they have borrowed then of course that may impact their underlying credit rating. There are many commentaries on our business that are myths about our business and we are inviting people to look for themselves.”

Gillian Guy, chief executive of Citizens Advice Bureau, will also address the committee. She said: “MPs have the opportunity to hammer home some hard truths from their constituencies. The payday loan industry has boomed as people struggle to cope with the rising cost of living, but it has failed to act responsibly.

“When I speak to MPs at the select committee, I will tell them how evidence from Citizens Advice finds that people are being given loans without any proper checks to make sure they can afford to pay them back. This sends borrowers into a spiral of debt which is very hard to get out of.

“Some payday lenders are misusing continuous payment authorities by emptying their customers’ bank accounts without prior warning – leaving them without any money to get to work, pay the bills or buy food.”

Payday lenders have also been criticised for aggressive advertising campaigns that reportedly mislead potential consumers. In July, the FCA’s chief executive, Martin Wheatley, indicated that offending firms could face a complete advertising ban.

He said previously: “Clearly that is an option that could be considered if it was felt that the way that advertising was being used couldn’t be dealt with through any other measures short of that.”

The MPs’ intervention follows research by a Government-backed body that found more than one million people plan to take out a payday loan to cover the cost of Christmas.

The Money Advice Service (MAS) said one in 40 (2.44%) people surveyed for its research, equating to around 1.2 million across the UK, is thinking about turning to a payday lender to fund their seasonal spending.

One third (32%) of the 2,000 consumers questioned also said they will ramp up their credit card debts to pay for the festivities, while one in every 11 (9%) people said they are still paying off what they owe from last Christmas.

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MPs to grill payday loan firms