Payday lenders have appointed a former standards committee chief to help them tighten up their act, but the voluntary nature of the compliance board will see many firms continue to act outside of its guidance.
Seymour Fortescue, former chief executive of the now defunct Banking Code Standards Board, will chair the Short-term Lending Compliance Board, which has been set up by the Consumer Finance Association to monitor practice across payday loan firms.
Mr Fortescue estimated that payday lenders would face compulsory regulation if they did not improve their practices within twelve months and promised to take a zero-tolerance approach to make self-regulation an effective option for the sector.
He leaves his role of chairman of Portman Group after four years working to establish a self-regulating responsibility group for the alcohol industry.
And he pointed to this experience as an example of how self-regulation could work in such socially sensitive industries if it was executed properly.
Lenders Opting Out
However, the first task on his hands for the payday loan industry will be establishing any kind of widespread compliance.
The monitoring carried out by the Short-term Lending Compliance Board will only apply to members of the Consumer Finance Association, which Wonga and many smaller lenders have shunned.
This comes as Wonga faces increasing scrutiny into the scrupulousness of its security protocols, with greater numbers complaining that they have been victims of fraud.
It also raided the bank account of 15-year-old Simon Oliver to reclaim a loan that he had never applied for.
And the Advertising Standards Authority has banned an advert for payday lender Cash Lady, featuring former bankrupt Kerry Katona, following 29 complaints.
(See our feature article: The Slippery World of Advertising: Who’s in Charge of What?)
Office of Fair Trading: Progress
The Office of Fair Trading, which regulates the sector, has been stepping up its efforts to remove credit licences from the worst offending companies.
It finally succeeded in closing down MCO Capital after the lender was found guilty of serious security flaws that prompted thousands of fraudulent loans.
A recent boost to the regulator’s powers now allows it to revoke credit licenses with immediate effect (read more).
Previously, firms with revoked credit licenses were able to continue trading under appeal, which gave them leave to remain for up to two years
Keith McDonald
Which4U Editor
If you enjoyed this article:
- Check out the latest articles on our Finance Blog.
- Sign up for our free e-newsletter.
- Follow us on Twitter for regular updates.
{loadmodule php,TwitterButton}