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Payday lenders are tackled by MPs Payday rollover plan is challenged by lenders
(35 minutes later)
Payday lenders are in dispute with consumer groups over the level of complaints relating to short-term lending. Payday lenders are divided over a plan to limit the number of rollovers of short-term, high-interest loans, MPs have heard.
Consumer groups say complaints are up since the introduction of a charter to ensure loans are made correctly. The City watchdog, the Financial Conduct Authority (FCA), has proposed a limit of two extensions of payday loans if borrowers chose not to repay.
But a trade body told MPs that there had only been 36 complaints so far this year. The Office of Fair Trading (OFT) has suggested that one rollover was a sign that a borrower was in difficulty.
But lenders told MPs that rollovers were suitable in some cases.
Payday lending is being put under the microscope by MPs amid a defence from some of the industry's biggest players.Payday lending is being put under the microscope by MPs amid a defence from some of the industry's biggest players.
Members of the Business Select Committee are quizzing lenders, consumer groups and a minister about the industry.Members of the Business Select Committee are quizzing lenders, consumer groups and a minister about the industry.
Providers of these short-term, high-interest loans have faced criticism from many, including Church leaders.
But loan provider Wonga has told the BBC its business practices are being misrepresented.
'Timid''Timid'
The one-off committee session heard from the Consumer Credit Trade Association, which challenged the idea that complaints were rising. The one-off committee session heard that consumer groups say complaints are up since the introduction of a charter to ensure loans are made correctly.
Providers Wonga and Mr Lender said that 2-3% of loans were made to people who then hit financial difficulty. The Consumer Credit Trade Association, a trade body, challenged the idea that complaints were rising and said there had only been 36 complaints so far this year.
Henry Raine, head of regulatory and legal affairs at Wonga, said that "compared favourably" with credit card companies and banks. Providers Wonga and Mr Lender said that 2-3% of loans were made to people who then hit financial difficulties.
Henry Raine, head of regulatory and legal affairs at Wonga, said that that "compared favourably" with credit card companies and banks.
"We aim to lend to people who can pay us back," he said. "We do everything we can to lessen the load of bad debt.""We aim to lend to people who can pay us back," he said. "We do everything we can to lessen the load of bad debt."
He added that Wonga's average loan was £176 for 17 days, and that customers received a variety of reminders in the final days to avoid having to extend their loans.He added that Wonga's average loan was £176 for 17 days, and that customers received a variety of reminders in the final days to avoid having to extend their loans.
Adam Freeman, of Mr Lender, said that it conducted strict affordability checks. It offered a loan to one in 100 applications, but forwarded the others onto its credit brokers. Adam Freeman, of provider Mr Lender, said that it conducted strict affordability checks. It offered a loan to one in 100 applications, but forwarded some others on to credit brokers.
Industry trade bodies said that they had not expelled any payday lenders for failing to adhere to their codes of practice.Industry trade bodies said that they had not expelled any payday lenders for failing to adhere to their codes of practice.
Rollovers
The lenders had differing views on the FCA plan to limit extension of loans to two rollovers.
Lender QuickQuid told MPs that it already limited borrowers to two rollovers. However, the Consumer Credit Trade Association described the FCA plan for two rollovers as "arbitrary" and said affordability was more important.
Mr Freeman agreed that there were cases in which it was better for a customer to rollover a loan and pay the extra interest.
"Just because someone rolls over a loan does not mean that they are in financial difficulty," he said.
Russell Hamblin-Boone, ‎chief executive of the Consumer Finance Association, said it had a code of practice that ensured lenders were only able to roll over a loan three times. He said the average time to repay was 41 days.
However, later in the session, Richard Lloyd, of the consumer association Which?, said: "It is just not credible to say that lenders are acting responsibly to allow people to roll over their loans."
MPs also heard that lenders had no system in place to check what other loans consumers had taken out.
Mortgage effectMortgage effect
The hearing comes after an Office of Fair Trading (OFT) report said that there were "deep-rooted" problems in the way payday loans attract and treat customers.The hearing comes after an Office of Fair Trading (OFT) report said that there were "deep-rooted" problems in the way payday loans attract and treat customers.
It threatened to refer the industry to the Competition Commission and has told individual lenders to improve how they deal with customers.It threatened to refer the industry to the Competition Commission and has told individual lenders to improve how they deal with customers.
This had prompted 25 lenders to leave the industry, the government said. There are more than 200 payday firms operating in the UK.This had prompted 25 lenders to leave the industry, the government said. There are more than 200 payday firms operating in the UK.
However, the Commons Public Accounts Committee has been scathing of the OFT's record in regulating the industry, accusing it of being "timid and ineffective" in a report published in May 2013.However, the Commons Public Accounts Committee has been scathing of the OFT's record in regulating the industry, accusing it of being "timid and ineffective" in a report published in May 2013.
Providers of these short-term, high-interest loans have faced criticism from many, including Church leaders.
But loan provider Wonga has told the BBC its business practices are being misrepresented.
Meanwhile, mortgage commentator Ray Boulger from the advisers John Charcol told Newsnight that taking out a payday loan could adversely affect any future mortgage offer.Meanwhile, mortgage commentator Ray Boulger from the advisers John Charcol told Newsnight that taking out a payday loan could adversely affect any future mortgage offer.
"Our experience is that mortgage lenders will often turn down requests for people who have had a payday loan - the regulator should require payday lenders to display this," he said."Our experience is that mortgage lenders will often turn down requests for people who have had a payday loan - the regulator should require payday lenders to display this," he said.