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Probe finds late payments on loans

3/2/14

By Mark Stillman

Over a third of payday loans are not fully paid back on time, according to a probe into the industry.

The Competition Commission is undertaking a sector-wide investigation after reports of "deep-rooted" problems in the payday industry.

Its progress report to date reveals that only about 65 per cent of loans are repaid in full on time or early. The Commission found that repeat use of payday loans, either by rolling one over or getting another, is rife.

In addition, it discovered that seven out of 10 customers claimed that they had not shopped around before taking out their most recent loan, while six out of 10 said they had never done this.

Repeat use of payday loans common

Some of the research looked at "repeat customers".

It found that almost half of customers who have never taken out a loan with a given lender before do one of two things, either rolling over their first loan or borrowing extra cash from the same lender within 30 days of the initial loan.

Three in five (60 per cent) of new customers go on to take at least one more loan with the same lender within 12 months of their original application.

The report's calculations indicate that a payday customer will take out three or four further loans with the same lender within a year of their first loan with that company.

The Commission found that taking customers borrowing from multiple lenders into account, repeat use of payday loans is probably even more common.

It discovered that the industry's largest players in the sector account for most loans issued.

FCA to supervise payday companies from April

There are three main providers of payday loans in the UK.

They are Wonga, Dollar Financial - which has three subsidiaries trading as The Money Shop, Payday UK and Payday Express - and Cash EuroNet, which has three online lending products - QuickQuid, Pounds to Pocket and Flexcredit.

The Commission is studying whether payday companies would find it more difficult to join the market or grow today, than when the leading lenders did.

The Office of Fair Trading (OFT) referred payday businesses to the Commission last year.

The Office found a number of companies seemed to base their business practices around customers who cannot afford to pay their loans back on time.

The Financial Conduct Authority (FCA), a strict new regulator, will begin to supervise payday companies from April.



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