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Office Of Fair Takes Action To Stop Unfair Payday Loan Practices

by Jim ONeil on December 23, 2010

in uk loans news

The Office Of Fair Trading (OFT) in the UK has issued a warning to Safeloans Limited, a payday lender that trades as Paydayok. This lender is believed to be misusing the direct debit facilities of its customers. Direct debits are used by some payday lenders to achieve greater control over repayments. However, this practice can be detrimental to borrowers.

Under some arrangements, if a borrower defaults on a payday loan, the lender can attempt to deduct the money from his or her bank account. This is often done without first agreeing to the amount that will be taken or the date on which the transaction will occur. Borrowers can face steep charges due to missed payments plus repeated attempts of the lender to access the funds.

According to the OFT, some lenders use direct debit authority as a vehicle for bypassing proper checks regarding the ability of a borrower to repay the loan. In addition, if lenders deduct money from a borrower’s account when the person is facing financial issues, the individual may not be able to pay rent, mortgage, or utilities. One expert advised that borrowers should only make loan payments via standing order, check, or postal order.

Several requirements were imposed on Safeloans Limited by the OFT. The company may only deduct  money from a borrower’s account on dates specified in the loan agreement, unless otherwise agreed to by both parties in advance. Repayment amounts cannot be changed unless previously agreed to and only money that is designated for repayment of the loan may be deducted.

If Safeloans Limited fails to comply with these requirements, it can face a fine as high as £50,000 per breach. In addition, action may be taken to revoke the credit license of the company. These requirements are similar to those imposed in November upon CIM Technologies Ltd that trades as Toothfairy Finance.

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