Lending must be fair – beware if loan is short term
Office of Fair Trading press release on 9 November 2010. Th epress release is set out in full below. Read between the lines and you will see the practices the OFT are trying to prevent.
The OFT has taken action to address unsatisfactory business practices of payday lender CIM Technologies Ltd, known as Tooth Fairy Finance.
Tooth Fairy Finance is a payday lender which typically lends amounts of between £100-£300 to students on a short-term basis via telephone or SMS.
The OFT has imposed requirements on Tooth Fairy Finance which set out that it must not:
- vary the repayment date or amount payable in respect of the loan, unless this is specifically agreed in advance with the debtor
- trade using names other than those permitted by its credit licence
- levy debt collection charges that are disproportionate to the amount owed.
The company must also appoint a suitably qualified person to advise on, and administer as necessary, legal and regulatory compliance.
Failure to comply with these requirements could lead to a fine of up to £50,000 per breach or to action by the OFT to revoke the company’s credit licence.
The OFT is also working with the Consumer Finance Association (CFA), the trade association for payday lenders, to promote higher standards across the payday loans sector.
Ray Watson, the OFT’s Director of Consumer Credit, said:
‘Payday lending provides access to credit for consumers who have limited choices. It is imperative that those who offer payday loans do so responsibly and in accordance with the law. Where we are not happy with a business’ lending practices we will not hesitate to take action to protect consumers.’
- See the requirements imposed on Tooth Fairy Finance (pdf 52kb).
- Businesses should not include terms in their contracts with consumers that enable them to vary the date and amount for collection without prior agreement. The OFT considers such terms are likely to be unfair under the Unfair Terms in Consumer Contracts Regulations 1999, as they have the potential to operate to the significant detriment of consumers. For example, where money is unexpectedly taken from consumers’ accounts during a time of financial difficulty, consumers may incur additional fees and charges from their bank or financial provider.
- Under the Consumer Credit Act 1974 (the Act), businesses that offer goods or services on credit or lend money or are involved in activities relating to credit or hire must be licensed by the OFT. The OFT has a duty to protect the interests of consumers by monitoring the fitness of those holding or applying for licences.
- A licensee who carries on business under a name not specified in the credit licence commits an offence (section 39(2) of the Act).
- Where the OFT is dissatisfied with any matter in connection with a business, a proposal to carry on a business or any other conduct by a licensee, associate or former associate, the OFT may impose ‘requirements’ on the licensee (section 33A of the Act). The OFT may also take action to impose a requirement whilst dealing with an application for a licence to be issued. Requirements may require a business to do or not to do (or to cease doing) anything specified for the purposes connected with addressing the OFT’s dissatisfaction, or securing that matters of the same or a similar kind do not arise.
- There are two ways that OFT can impose requirements. Firstly, the OFT may issue a formal notice to the business informing it of the requirements it is minded to impose. The business may then make representations to an adjudicator who will consider these and make a determination. The business has a right of appeal to an Independent Tribunal. Alternatively, the business may propose requirements and if these are in the same terms as the requirements the OFT is minded to impose, the OFT can impose these requirements without proceeding with the formal notice. Under this procedure, which has been used in this case, the business does not have a right of appeal to the Tribunal.