MPs have branded the Office of Fair Trading "ineffective and timid in the extreme" for its failure to control the payday loans industry.
The Public Accounts Committee, chaired by Margaret Hodge, said that the regulator had overlooked a series of "disgraceful" practices by lenders that had cost consumers around £450 million per year.
The committee’s report said that the number of people resorting to payday loans alongside credit cards and personal loans had increased to two million as budgets became squeezed following the financial crisis.
And payday loan companies, which advance short-term high-cost loans, are suspected of overlooking credit checks to coax the financially vulnerable into a spiral of debt.
OFT “must stop tiptoeing”
Ms Hodge accused the OFT of operating reactively rather than proactively and said that it needed to show more willing to carry out its threats of revoking credit licenses for wayward firms.
“It passively waits for complaints from consumer before acting,” she said.
“The regulatory regime must stop tiptoeing around the problem.”
The committee’s report said that the OFT had lost sight of all of the operators within the industry, and that it had not done enough to ensure that lenders which had been stripped of their credit licenses could not simply re-register under a different name.
The OFT defended its performance, saying that it was forced to operate under tight legal guidelines.
"We are disappointed the committee has not acknowledged the legislative constraints under which the OFT currently operates, including a lack of regulatory powers and the limited circumstances where a fine can be imposed," a spokesman said.
Only in February did the regulator receive the power to revoke credit licenses with immediate effect rather than allowing firms to continue operating for up to two years on appeal (read more).
Since that point, it has warned 50 lenders to clean up their act or face sanctions. Five of these have since lost or voluntarily surrendered their credit licenses.
Keith McDonald
Which4U Editor
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