Is time up for payday loans? Yesterday we reported that a London council had blocked payday loans sites from their entire IT netwok which cover libraries, community centres and council buildings.

Pressure on Payday loans sites have been mounting over the past 12 weeks and it looks like time is up.

Payday Loans referred to competition commission

This morning the Office of Fair Trading announced that the 12 week deadline had passed on payday loan sites to “clean up their act” or face being referred to the competition commission.

The UK’s £2bn payday loan industry will be subject to a full-blown inquiry by the Competition Commission over concerns about the way it treats vulnerable borrowers.

The Office of Fair Trading said it had decided to refer lenders to the more powerful watchdog after it found serious problems in the way the sector markets loans.

 

Payday loans slippery slope

 

April : Clean Up or face a ban

The consumer watchdog investigated payday lenders and their lending practices and have issued an ultimatum : Clean up in 12 weeks, or face a ban.

The office of fair trading investigated 50 payday lenders (making up 90% of the market) and revealed there is widespread irresponsible lending

 

April : Are payday loans mis-sold financial products

Some payday loans could fall under “mis-sold”. Payday loans are sold to customers as a short-term fix to common financial problems. From vehicle maintenance to unexpectedly high utility bills, these unique financial instruments offer to solve a customer’s woes in the short term. They’ll be able to pay off the entirety of the loan when they receive their next paycheck, often for a high fee, and the loan then simply goes away with all of the borrower’s obligations having been met.

Many times, though, payday loans can serve as a gateway to even deeper financial problems. In many cases, they are mis-sold by UK companies looking to take advantage of customers who have no way to pay off their loan in a short amount of time. They charge high APR and engage in other practises that just aren’t fair.

Unlike loans offered by major banks, payday loans are often sold by small companies that “sell” their services with outlandish advertising claims and promises that the loan is small, affordable, short, and won’t make a lasting negative impact on consumer finances. This claim is often false, as these companies charge fees and interest rates that are incalculably high. Many customers quickly find themselves trapped for months or even years in a cycle that virtually forces them to take out new payday loans time and time again.

 

June: Google cracks down on payday loans sites, spam techniques

Google also tackled payday loans recently, not because of their lending practises (you can still use pay to appear in Adwords for payday loans) but because sites were using methods to rank in the search results that did not comply with Google’s TOS.

Google released an algorithm to try and identify and remove sites that were appearing for the search “payday loans” by using a massive amount of links and redirecting to a payday loans site, this is called a doorway page. The original algorithm was not very successful as these payday loan sites were being designed to be caught after a few days and then replaced with another stream of site.

Google has now managed to remove these payday loan doorway sites, either by devaluing links in this vertical Or by having their spam algorithm constantly monitoring this verticle.

 

June: Haringey Council blockes payday loan sites

Haringey council has banned the top 50 payday loans sites from appearing across its entire IT network. This ban on payday loans sites will cover computers within libraries, community centres and other council buildings.

The ban on these payday loans sites is to protect residents from  ”the pitfalls of excessive interest rates”

 

Today: Reffered to competition commission

The OFT said it decided to make the referral because it continues to suspect that features of the market “prevent, restrict or distort competition” and it could not tackle them under existing laws.

 

 

 

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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.