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Payday lenders offer short-term, high interest loans to consumers. Usually borrowers take a short-term loan for a few weeks. Under the provisions of the Consumer Credit Act 1974, all payday lenders must have a valid licence from the Office of Fair Trading (OFT) in order to operate.

Payday lenders have faced criticism for encouraging irresponsible lending and for the cost of the loans. They are criticised for exacerbating debt problems as borrowers face high rates of interest if they can’t pay back the cash in the required period. However, others have argued that it is extremely misleading to compare the APR of payday loans to those of traditional loans, due to the very short period of time the customer borrows for.

The purpose of this note is to look at the current reviews of payday loans and proposals to reform the industry currently being taken forward by the OFT, the FCA and, following its referral, the Competition Commission.


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