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Press releases 2013 -

OFT acts against leading payday lenders and proposes to refer the sector to Competition Commission

payday advance neon sign

20/13    6 March 2013

The OFT is giving the leading 50 payday lenders, accounting for 90 per cent of the payday market, 12 weeks to change their business practices or risk losing their licences, after it uncovered evidence of widespread irresponsible lending and failure to comply with the standards required of them.

The OFT has also today announced that, subject to consultation, it proposes to refer the payday lending market to the Competition Commission after it found evidence of deep-rooted problems in how lenders compete with each other.

The action was announced in the final report on the OFT's compliance review of the £2 billion payday lending sector. The review found evidence of problems throughout the lifecycle of payday loans, from advertising to debt collection, and across the sector, including by leading lenders that are members of established trade associations.

Particular areas of non-compliance included:

  • lenders failing to conduct adequate assessments of affordability before lending or before rolling over loans
  • failing to explain adequately how payments will be collected
  • using aggressive debt collection practices
  • not treating borrowers in financial difficulty with forbearance.

The fifty leading lenders, each of which was inspected, will have to take rapid action to address the specific concerns the OFT identified with each of their businesses. They must demonstrate within 12 weeks that they are fully compliant, or risk losing their licence. Failure to cooperate with this process will trigger enforcement action.

Payday lending is a top enforcement priority for the OFT. Customers often have limited alternative sources of credit and are frequently in a vulnerable financial position. Combined with this, the high rates of interest charged by many payday lenders can make the consequences of irresponsible lending particularly acute. 

The OFT has also uncovered evidence suggesting that this market is not working well in other respects and that irresponsible lending in the sector may have its roots in the way competition works. 

Lenders were found to compete by emphasising the speed and easy access to loans rather than the price and also to be relying too heavily on rolling over or refinancing loans. The OFT believes that both these factors distort lenders' incentives to carry out proper affordability assessments as to do so would risk losing business to competitors. Too many people are granted loans they cannot afford to repay and it would appear that payday lenders' revenues are heavily reliant on those customers who fail to repay their original loan in full on time.

Despite payday loans being described as one-off short term loans, costing an average of £25 per £100 for 30 days, up to half of payday lenders' revenue comes from loans that last longer and cost more because they are rolled over or refinanced. The OFT also found that payday lenders are not competing with each other for this large source of revenue because by this time they have a captive market. 

The OFT believes that these fundamental problems with the operation of the payday market go beyond non-compliance with the law and regulations. It believes that a full investigation by the Competition Commission is needed to identify and, if appropriate, impose lasting solutions to make this market serve its customers better. The Financial Conduct Authority (FCA) will regulate consumer credit from April 2014 and it will be able to use the analysis and conclusions of the Competition Commission in developing its rules and applying its powers. The FCA will have significant powers and resources beyond those available to the OFT, including powers to cap interest rates and to impose a ban or a limit on the number of rollovers lenders may offer. 

Clive Maxwell, OFT Chief Executive, said:

'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.

'We are proposing to refer this market to the Competition Commission, which has wider powers to get to heart of the problems in this market and to identify and impose lasting solutions that protect consumers. 

'Irresponsible lending is not confined to a few rogue payday lenders - it is a problem across the sector. If we do not see rapid, significant improvements by the 50 lenders we inspected they risk their licences being removed. Payday lending is a top enforcement priority for the OFT.'

The OFT is advising consumers to think carefully before taking out a payday loan and to be aware of their rights and where to go if they have a problem. Consumers struggling to repay debts can contact Citizens Advice for free, impartial advice on: 08454 040506 or at Individual consumers with complaints should approach their lender in the first instance. If they are unhappy with the response, they can take their complaint to the Financial Ombudsman Service on: 0800 023 4567 or at

The Market Investigation Reference consultation paper (pdf 295kb) published today sets out the OFT's proposed decision and invites comments by 1 May 2013. The OFT expects to make a final decision on referring the payday market to the Competition Commission by June 2013. More information about the MIR consultation is available on the consultation page.


  1. The OFT's findings can be found in its final report (pdf 1.9Mb). The report and annexes can also be downloaded from the project page.
  2. The OFT estimates that the market was worth £2.0 to £2.2 billion in 2011/12, which corresponds to between 7.4 and 8.2 million new loans; this is up from an estimated £900 million in 2008/09.
  3. The OFT published revised Debt Collection Guidance in November 2012, focusing on continuous payment authority (CPA). The guidance 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.
  4. The Financial Conduct Authority was created under the Financial Services Act and will take over responsibility for regulating consumer credit from April 2014. 
  5. Under section 131 of the Enterprise Act 2002 (EA02), the OFT may make a market investigation reference to the Competition Commission where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services, prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom. 
  6. Under section 169 of the EA02, where the OFT is proposing to decide to make a reference to the Competition Commission it must first consult, so far as practicable, any person on whose interests the reference is likely to have a substantial impact. This consultation document is published in order that interested parties can respond to the provisional decision. Comments should be sent by 1 May 2013 to:

    Payday Lending Consultation
    Office of Fair Trading
    Fleetbank House
    2-6 Salisbury Square
    London EC4Y 8JX
  7. Below are some inforgraphics from the final report, journalists are welcome to use these (click on each for a larger version).

    Click for larger version  

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