UK credit regulators warn disobedient bad credit loan lenders about losing their license amidst reports about granting loans to even those who can’t afford. The Office of Fair Trading (OFT), a UK not-for-profit company that ensures consumer protection, have identified 50 lenders and urged them to change their business practices to keep their license.
OFT’s chief executive officer, Clive Maxwell, said in a report, “We have found fundamental problems with the way the payday market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers. Payday lenders are earning up to half their revenue not from one-off loans, but from rolled over or re-financed deals where unexpected costs can rapidly mount up.”
Meanwhile, the Consumer Finance Association (CFA) has recognized the problem as well. According to Russell Hamblin-Boone, CFA’s chief executive officer, “We recognize there are concerns about the industry. However, these reports are a snapshot in time and work is already under way.”
These UK regulators, in particular the OFT, have identified four areas that equate to poor business practices: (i) not conducting assessments to determine credit consumer’s ability to pay back the loan; (ii) not explaining how the loan will be collected, and how much will be collected; (iii) not being patient and considerate about borrowers experiencing financial difficulties; and (iv) using forceful debt collection practices.
What Are Bad Credit Loans?
Bad credit loans, more commonly known as payday loans, have become a great alternative to consumers who are in dire financial need. The best thing about these loans, and probably what attracts credit consumers the most, is the fact that there are no credit checks; that is, lenders don’t evaluate their borrowers based on their credit scores. The catch though is that borrowers are expected to pay back the loan in a couple of weeks or so, and have to pay an interest rate that is quite more expensive than a regular type of loan, say, a bank loan, and this is where the problem comes most often.
According to studies done by a number of credit consumer groups, some consumers are forced to roll over their loans, which eventually results to higher levels of debts since they may no longer be able to pay the higher interest rate repayments.
In response to issues and complaints received from various credit consumer groups, UK regulators have started to make a move. Maxwell said, “…If we do not see rapid, significant improvements by the 50 lenders we inspected they risk their licences being removed…”
The CFA, on the other hand, representing several companies that offer payday loans, assures that the industry has agreed upon a code of practice in order to improve their practices.