Office of Fair Trading
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OFT refers payday lending market to Competition Commission

The OFT today referred the market for payday lending in the UK to the Competition Commission because of concerns the OFT has about deep-rooted problems with the way competition works. 

The OFT announced its provisional decision to refer the market in March and carried out a public consultation. Having considered responses submitted during this consultation, the OFT continues to suspect that features of the payday lending market prevent, restrict or distort competition. It considers that these issues go deeper than can be addressed through existing laws and guidance. 

Features of the market of concern include:

  • Practices that make it difficult for consumers to identify or compare the full cost of payday loans, undermining competition over price for loans.
  • Barriers to switching between lenders when loans are rolled over that prevent other lenders competing for this business.
  • Variable levels of compliance with relevant laws and guidance leading to firms that do invest time and effort complying being at a competitive disadvantage to firms that do not.
  • A significant proportion of borrowers have poor credit histories, limited access to other forms of credit and/or a pressing need to borrow. The cost of the loan may therefore be a less significant factor for borrowers, which may weaken competition on price between lenders.

In addition, the OFT is concerned that lenders are competing primarily on the availability and speed of loan approval, rather than price. The competitive pressure to approve loans quickly may give firms an incentive to skimp on the affordability assessment which is designed to prevent irresponsible lending and protect consumers. The OFT is also concerned about business models that appear predicated on making loans which are unaffordable, leading to borrowers paying far more than expected through rollovers, additional interest and other charges. Lenders appear to derive up to 50% of their revenue from such practices.

The OFT considers that the Competition Commission is best placed to investigate and help resolve the fundamental problems the OFT has identified with this market. By referring the market now, the work of the Commission will be able to provide the Financial Conduct Authority (FCA) with a sound evidential basis on which to develop its rules and apply its new powers after it takes over responsibility for regulating the payday market from April 2014. The FCA's powers will include the ability to place a possible cap on interest rates and a ban or limit on the number of rollovers lenders may offer. The Commission can also impose remedies itself, including banning or limiting particular features of a product or market.

Payday lending remains a top enforcement priority for the OFT. Following publication of its Compliance Review in March, the OFT wrote to 50 leading lenders giving them 12 weeks from receipt to demonstrate they comply fully with their legal obligations and the standards expected. The letters were issued on a rolling programme and the OFT has received responses from 20 of the 50 lenders, with all responses expected by the end of July.

To date, five of the 50 lenders have informed the OFT that they have left the payday market, including two that have surrendered their consumer credit licences altogether. In addition to the 50 lenders written to, the OFT has also revoked the licences of three other payday lenders since the Review.
Clive Maxwell, OFT Chief Executive, said:

'Competition appears not to be working properly in the payday lending market, allowing firms to profit from making loans that cannot be paid back on time. We have seen evidence of financial loss and personal distress to many people.

'The Competition Commission can now conduct a detailed investigation to get to the root causes and, if necessary, use its far reaching powers to fix the payday lending market.
'In the meantime, we are using the powers available to us to crack down on payday lenders that breach the law or OFT guidance.'


  1. Read more on the reference including the final decision.
  2. Under section 131 of the Enterprise Act 2002 (EA02), the OFT may make a market investigation reference to the Competition Commission where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services, prevents, restricts or distorts competition.
  3. The OFT announced its provisional decision to refer the payday market to the Competition Commission in March 2013.
  4. Following the announcement, the OFT opened a public consultation on its provisional decision, which concluded on 1 May 2013.
  5. The OFT estimates that the payday market was worth £2.0 to £2.2 billion in 2011/12, which corresponds to between 7.4 and 8.2 million new loans; this is up from an estimated £900 million in 2008/09.
  6. The Financial Conduct Authority was created under the Financial Services Act and will take over responsibility for regulating consumer credit from April 2014.

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