ALMOST half of the payday lenders ordered by the trading watchdog to prove their practices are up to scratch have decided to exit the market.
The Office of Fair Trading (OFT), which referred the industry to the Competition Commission after finding "deep-rooted" problems, said 19 out of 50 firms it investigated had decided to call it a day. One other firm told the watchdog it was no longer lending.
The figures were released as the Commission said the three largest payday firms, Wonga, Cash America - which owns Pounds to Pocket and QuickQuid - and Dollar Financial Corp - which is behind The Money Shop and PaydayUK - have about a 70% share of the market by turnover.
The findings quoted by the Commission were made by the OFT during its investigation, although the OFT did not name the firms at the time.
The OFT also estimated that in 2011/12 payday lenders' turnover across the industry was £860 million. Lenders were said to have seen a four-fold increase in turnover between 2009/10 and 2011/12.
Problems raised by the OFT about the market generally included lenders not carrying out proper affordability checks, meaning the borrower could not afford to pay their loan back on time and so forced to roll the loan over, causing the cost to balloon.
The sector has already come under fire from consumer groups, with Citizens Advice Scotland dealing with more than 1200 cases related to payday loans from April to June this year. The charity said earlier this month that it believes three-quarters of its clients struggling with the loans have grounds for official complaint.
One in five, Citizens Advice Scotland said, were possible cases of fraud, where a borrower was chased for a loan they had not taken out and 12% involved lenders pestering people with calls and texts rather than accept affordable repayment offers.
Last month the Church Of Scotland revealed it was to join forces with the Church Of England to create a network of lower-interest credit unions to take on controversial payday loan firms.
According to the latest OFT announcement, of the 19 firms that have told the watchdog they no longer plan to operate as payday lenders, 15 have said they want to continue to trade in other areas that still need a consumer credit licence.
The Commission is carrying out its own investigation to see whether some features of the payday market block competition.
A new document setting out the scope of the Commission's investigation contains the OFT's market share estimates.
The Commission said that on the face of it, "regardless of whether they are sold online or in stores, the pricing of payday loans is not straightforward, potentially involving daily or monthly interest, fixed fees and charges for late payments".
It will investigate further to find out if initial observations about the industry generally are accurate.
The inquiry will look at how easy it is for consumers to shop around and work out which offers represent the best value for money and switch payday firms.
It will also examine what other choices are open to payday customers, such as bank overdrafts.
The Commission emphasised its investigation was still in the early stages and it had not come to any particular views.
Provisional findings will be published early next summer and a full report by the end of 2014.
The Commission wants to hear views from interested parties by September 20 on whether the issues it has identified should be included in its investigation and whether it has missed anything out.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article