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Press releases 2010 -

OFT takes further action against unfair direct debit clauses in payday loan contracts

payday advance neon sign

142/10    17 December 2010

The OFT today warned payday lenders that they must not misuse direct debit facilities to vary the amount or date of a loan repayment.

This warning follows the OFT's decision to impose requirements on payday lender Safeloans Limited, trading as Paydayok.

Direct debit facilities are used by some payday lenders to give them greater control over the repayment of the short-term loan. This means that if a borrower defaults on the loan, the lender can make multiple attempts to take money from the borrower's account without agreeing specific amounts or dates with the borrower.

The OFT believes that some lenders use this 'continuous authority' as a way to bypass proper checks on a borrower's ability to repay. The OFT is also concerned that taking money from a debtor's account when they are already in difficulty could prevent them from meeting priority debts, such as rent or mortgage payments.

Safeloans Limited typically offers same-day loans of £50-£400 on a short-term basis. The requirements now imposed by the OFT on the company state that it must:

  • only take money from the borrower's account on the date or dates set out in the loan agreement, unless otherwise agreed with the borrower in advance
  • not change the repayment amount unless this has been specifically agreed with the borrower in advance
  • only take money from an account specifically given to Paydayok for the repayment of that loan.

Failure to comply with requirements can lead to a fine of up to £50,000 per breach, or action to revoke a company's credit licence. The requirements imposed on Paydayok follow similar action announced last month against CIM Technologies Ltd, trading as Toothfairy Finance.

Ray Watson, the OFT's Director of Consumer Credit, said:

'We have made it clear that we will not tolerate companies misusing repayment facilities and we will take action to ensure that unfair terms are not used. Those who offer payday loans must do so responsibly and in accordance with the expected standards.'


  1. Download the requirements imposed on Paydayok (pdf 30kb). 
  2. Businesses should not include terms in their contracts with consumers that enable the business 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. 
  3. 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. 
  4. The OFT is also working with industry representatives to promote higher standards across the payday lending sector, including to ensure that companies recognise that the use of these type of clauses is unacceptable.

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