Weekly Blog by Philip King, CEO of the ICM - 'The need for speed'

My blog on 21 March referred to the OFT's Payday Lending Compliance Review and I said that the proposed investigation by the Competition Commission made sense. I was pleased to hear confirmation at the weekend that the investigation is going to take place. It will take about twelve months for the investigation to be completed so, not surprisingly, there is a clamour for more urgent action to be taken. A banning of payday loan adverts and capping the amount of money that can be made from an individual loan are among the suggestions.

 

I was sorry I was unable to attend the Summit chaired by Jo Swinson, the consumer minister, on Monday which brought together lenders, regulators, charities and consumer groups but I hope that it will deliver more than just Words.

 

I said previously that one of my biggest concerns was the apparent absence of adequate affordability assessments ahead of the granting of loans. This must surely be the biggest issue: if loans are being made to people who don't have the capacity to repay them then the only outcome will be misery. In the interim, this is one key area that can be fixed. The OFT report earlier in the year said that "most lenders asserted that they undertook affordability assessments at the initial loan stage yet the vast majority were unable to provide satisfactory proof that they had applied such assessments in practice.

Only six of the 50 lenders visited were able to provide documentary evidence that they assessed consumers' likely disposable income as part of their affordability assessments."

 

Alongside its other tactical measures, the OFT should focus on this by insisting on evidence of affordability tests being carried out, raise the bar in terms of the depth and frequency of its compliance testing, and take action when there is evidence of failure. Let's see it use its teeth to good effect and throw out the bad apples in the sector; the worst possible scenario is for the world to sit on its hands while the Competition Commission carries out a thorough but painfully slow investigation.