The Office of Fair Trading (OFT) is giving leading payday lenders just 12 weeks to change their business practices.
Over 50 major lenders, which is 90% of the market, risk losing their licences after evidence uncovered irresponsible lending and failure to comply with the standards required of them.
The OFT also announced that it is proposing to refer the payday lending market to the Competition Commission after evidence of ‘deep-rooted problems’ was found in how lenders compete with each other.
These actions were announced in the final report on the OFT’s compliance review of the £2 billion payday lending sector.
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.”
He added: “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 now advising consumers to think very carefully when considering taking out a payday loan.