Pinsent Masons says that searches allow OFT or Trading Standards Officers to gain access to premises to observe how the business is run and inspect a business’ documents. This may include monitoring and recording telephone calls, online applications and lending decisions. The OFT carries out such visits as part of its role in ensuring that payday lenders are complying with the legislation and are fit to hold a consumer credit licence.
Pinsent Masons adds that the OFT has the power to impose changes to the way a business operates.
Pinsent Masons' partner Ian Roberts says: “The OFT is taking a very pro-active approach towards payday lenders.Going to a business and searching through its files is one of the most intrusive forms of action the OFT is able to take. Many payday lenders are happy to cooperate with the OFT as they are running legitimate businesses that meet the OFT’s requirements.”
"The OFT has openly said it is targeting payday firms as part of an on-going review. Although there may be a few rotten apples who may give the OFT a genuine cause for concern, I would like to think that the vast majority of businesses in this sector operate in a transparent manner and try to comply with all the detailed legal requirements and guidance. We have certainly seen a number of new clients coming into this industry and wanting our advice to help ensure that they are fully compliant.”
“The last time the OFT was so active was when it focussed its attentions on debt management firms. The OFT employed a variety of tactics to monitor compliance, including mystery shopping exercises, a website sweep and on-site office visits by Trading Standards officers.”
Pinsent Masons explains that debt management firms provide consumers with advice and assistance on how to deal with their debts, and the range of debt management options available to them.
In 2012, following an initial review if a number of payday lender's websites, the OFT announced a number of areas that their review of payday lenders would focus on as part of their Irresponsible Lending Compliance Review, including businesses that:
- Give loans without first checking adequately that the borrower can afford to repay them.
- Fail to explain the features and the risks of the loans to borrowers.
- Inappropriately target particular groups of people with clearly unsuitable or unaffordable credit.
- Roll over loans so that charges escalate and the loans become unaffordable.
- Treat borrowers that get into financial difficulties unfairly.
- Have inadequate and/or misleading information in their adverts and on their websites.
Says Ian Roberts: “The OFT has a key role to play as a consumer champion, and it is important that it ensures all participants comply with the law. Licensed payday and other short term lenders play a vital role in the market by providing funds to borrowers who would otherwise be unable to borrow funds from legitimate sources.“
“There is a lot of focus in the news on high APRs, but this can be confusing as APRs show the cost of borrowing over a year, and these loans are only designed to be used for short periods. When you need a hotel room for the night, you want to know it costs £80 not £29,200 a year!”
* Figures cover inspections and the use of their formal power of entry under s, 36C Consumer Credit Act