The OFT has also published revised Debt Collection Guidance, focusing on continuous payment authority (CPA), a mechanism commonly used by payday lenders to collect repayments.
The guidance helps to ensure that traders with a consumer credit licence do not misuse CPA. It makes clear that the OFT expects lenders’ use of CPA to be reasonable and proportionate, and to have regard to a borrower’s financial position.
The guidance sets out the minimum standards expected of traders and includes clear examples of unfair/improper use of CPA including:
- Using CPA without the informed consent of the borrower or in ways that have not been agreed
- Failing to explain adequately how CPA works and how it can be cancelled
- Not taking steps to establish the reasons for the payment failure and whether the borrower may be in financial difficulties
- Trying to take payment where there is reason to believe that there are insufficient funds in the account
- Continuing to use CPA for an unreasonable period after a scheduled payment was due
Breaching OFT guidance can lead to enforcement action.
David Fisher, OFT Director of Consumer Credit, said:
“We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them. It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action.
“Our report shows that a large number of payday loans are not repaid on time. I would urge anyone thinking about taking out a payday loan to make sure they fully understand the costs involved so they can be sure they can afford to repay it.
“Our revised guidance makes it absolutely clear to lenders what we expect from them when using continuous payment authority to recover debts and that we will not accept its misuse.”
Meanwhile the OFT has appointed four new Enforcement Directors as part of its continued focus on enforcement and delivery.