Payday lenders have been described as a “growing problem” for big cities such as Leeds by council leader Keith Wakefield as a new investigation was launched into the industry.
Coun Wakefield welcomed the decision to ask the Competition Commission to look into payday lenders after an Office of Fair Trading (OFT) inquiry.
The OFT expressed concern that lenders may be taking shortcuts when looking into whether customers could afford loans.
It also found some lenders based their success on customers being unable to repay their loans and becoming stuck with the company.
Payday lenders offer short-term loans, often at very high interest rates. That means if the loan is not paid back the amount owed can quickly multiply.
Coun Wakefield said: “The OFT itself has said that these lenders cause ‘misery and hardship for borrowers’ and, as we are all too aware in Leeds, this is a growing problem for big cities like ours.
“I welcome the Competition Commission’s investigation and am hopeful they will see fit to put a cap on the interest rates charged by these companies. I think it is vital they put a stop to the phenomenally high rates they currently charge which often result in spiralling debts and the many related problems this can cause, like stress, health issues and relationship problems.”
If the Competition Commission agrees there is a problem it can ban or limit the products sold by payday lenders or shake up the whole industry.
Russell Hamblin-Boone, chief executive of the Consumer Finance Association which represents the industry, said: “The OFT’s report acknowledges that those lenders that have been raising standards and complying with the regulation have actually put themselves at a competitive disadvantage.
“However, the CFA has always supported well-designed, well-implemented regulation in order to protect consumers and drive up standards.” WHAT DO YOU THINK? Click here to register and have your say on the stories and issues that matter to you