Britain’s consumer watchdog has launched investigations into several pay-day lenders over aggressive debt collection and expressed its concern about general poor practice within the sector.
Pay-day lenders offer short-term loans that are intended to be paid back when borrowers receive their wages.
Britons have increasingly turned to these loans as mainstream banks have tightened their criteria for granting short-term credit.
“We have uncovered evidence that some pay-day lenders are acting in ways that are so serious that we have already opened formal investigations against them,” Office of Fair Trading’s (OFT) director of consumer credit David Fisher said yesterday.
“It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action.”
The OFT identified issues around debt collection practices, the adequacy of affordability checks made by lenders, the number of loans not repaid on time and the lack of forbearance shown by some lenders when borrowers ended up in financial difficulties.
Wonga.com, which offers short-term loans of up to £1 000 (R14 000), more than trebled its earnings last year.
Like other pay-day lenders, the company has faced criticism that its annual percentage rate, listed on Wonga.com as 4 214 percent, takes advantage of the financially vulnerable.
The OFT is reviewing the whole sector and has said that some firms would face enforcement action if they did not improve their practices.
Wonga said that it welcomed the OFT’s review.
“We provide a valued, transparent service to more than a million customers and want to see rogue practices rooted out across all financial services,” the company said.
The OFT said that it would publish a full report next year and state whether wider action was needed to tackle problems in the sector.