COMMENT: Payday lending problems need urgent attention while authorities play catch-up

By Tara Evans for the Daily Mail

Published: 13:21 GMT, 31 May 2013 | Updated: 15:14 GMT, 31 May 2013

Parliament today condemned the Office of Fair Trading for its 'timid' approach to regulating the payday lending industry and the bottom end of the consumer credit market.

The Public Affairs Committee report called on regulators to 'stop tiptoeing around the problem' and warned that firms are targeting the vulnerable with loans. This is hardly revelatory.  

The worrying thing is that the Government, regulators and not even the payday loan industry itself know the size of the problem.

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Concern: The Office of Fair Trading has been slammed by MPs for it's timid approach to regulating the payday loans market.

The Consumer Finance Association, which represents a number of payday lenders including The Money Shop, Quick Quid and Cash Convertors, yesterday side-stepped this issue, which was raised in the PAC report.

A colleague met with the CFA’s press team to ask them if they knew the amount of people borrowing and the amount being borrowed from their members.

Their response: 'We do not have access to information on how much customers are borrowing and how many customers they have ... a very real reason for not sharing this is because it could be anti-competitive.'

The reluctance to share information is just one of the core problems with the industry. Many payday lenders are not sharing information about the number of borrowers and the amounts being borrowed with credit reference agencies.

This means that some borrowers are able to rack up a number payday loans with different borrowers – often to pay off an existing loan.

Giving evidence for the PAC report, Henry Raine of the UK’s biggest payday lender Wonga said that it also identifies with this problem. It uses two credit reference agencies – CallCredit and Experian – as part of its application vetting process.

He said: ‘One of the problems we have and one of the things that we are very keen on doing ... is making it clear that everyone should use the main credit reference agencies and return data in real time.’ 

I don't know the answer. But, I know that the problems that my colleagues and I continue to identity need urgent attention.

Part of the problem is that payday lenders resist playing by the same rules as other financial businesses.

Last year Errol Damelin, co-founder of Wonga, tried to persuade me that it was just the same as any other online retailer, like Amazon or eBay. This casual attitude towards high cost borrowing worried me.  

Wonga and other pay lenders say that they will welcome regulation.

Without stricter rules there is no consistency in the market - including the sharing of credit checking information and performance of adequate affordability checks.

When the Financial Conduct Authority takes over regulation in April next year it will need to show it is committed to resolving this and other issues.

The PAC report may have criticised the OFT for its soft approach to the industry but in June it has its chance to prove that it is serious about a crackdown by referring the market to the Competition Commission.

I just hope it takes it. 

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