OFT sets out guidance to Green Deal providers

In May 2013, consumer credit regulator the Office of Fair Trading (OFT) issued additional guidance to providers of the Green Deal. The scheme launched in January 2013 and aimed at making households and businesses in the UK more energy efficient. 

Under the scheme, the household or organisation agrees with their provider the work to be done and the cost. The OFT is involved in the Green Deal as the scheme involves an element of credit, in that the homeowner or organisation pays for the costs of their energy-saving measures in instalments over a period of time, via their electricity bill. The idea is that the monthly repayments will be met by the cost savings made as a result of the energy-efficient alterations made to the property. When collecting payments, providers must abide by the OFT’s Debt Collection Guidance (DCG), which was updated in November 2012. 

When a Green Deal property is sold, the new owner must meet the repayment obligations, and it is this situation which is covered by the latest guidance. 

The OFT, in conjunction with the government’s Department for Energy and Climate Change (DECC), has now made it clear to the Green Deal providers that the new owner is not obliged to maintain the repayments if there has been a breach of the rules surrounding disclosure and acknowledgement (D&A), which relate to the need to inform a prospective buyer of the need to maintain the previous owner’s Green Deal obligations. If the bill payer has made a complaint to the provider on this issue, the provider must investigate the matter fully in line with the requirements of the Green Deal Code of Practice and the Guidance on Green Deal Sanctions and Appeals, and if it finds in the customer’s favour, collection of the payments must be halted. This applies even if the complaint is referred to the Green Deal Ombudsman and Investigation Service. If there is “genuine doubt” about whether the D&A provisions have been breached however, then collection of payments can continue. 

The joint OFT and DECC document highlights Paragraph 3.9(k) of the DCG, which explains that “failing to cease debt recovery activity whilst investigating a reasonably queried or disputed debt when the debtor has, or appears as if he may have, valid grounds for the query or dispute,” is unfair and improper. 

The credit watchdog commented: “In the OFT’s view, if the provider is satisfied, following this initial investigation, that the D&A provisions have been, or are highly likely to have been, breached, the provider should suspend collection of the Green Deal charge, in line with the DCG.”


Rogue PPI claims firms named and shamed by watchdog

The Claims Management Regulation (CMR) Unit, which is part of the Ministry of Justice, has launched a new online tool which will allow consumers to check whether any claims management company (CMC) they use is under investigation by the regulator, or has previously been subject to disciplinary action. Consumers will also be able to find out exactly which rules the CMC has broken.

There are currently around 2,600 CMCs in the UK that are authorised by the CMR Unit, of which 1,700 handle personal injury cases and 1,150 handle financial matters, usually relating to payment protection insurance (PPI).

Over 100 PPI CMCs have been banned from trading by the CMR Unit to date, while a further 149 have been warned. Over 900 CMCs have been banned since 2007, when regulation of the sector commenced. However, some bodies have expressed concern about the fact that typically only the firm is banned, and not the key individuals, allowing these individuals to start new firms. “Banned companies can often reappear in another guise shortly after being banned,” said Chris Hannant, policy director of the Association of Professional Financial Advisers, in October 2012.

Over 10,000 complaints were made to the CMR Unit in 2012, with areas of concern including: misleading marketing, high-pressure sales practices, fee disclosure and complaints handling procedures. An overwhelming majority of CMC complaints concern those active in the financial sector.

From 1 April 2013, CMCs were banned from issuing advertisements that offered cash inducements, and were banned from receiving referral fees. From 8 July, CMCs must alert all their customers within 14 days if they are subject to regulatory enforcement action, and must draft written contracts for all clients. It is also now possible for a customer to refer a complaint about a CMC to the Legal Ombudsman if they are not satisfied with the company’s response.


OFT defends its regulation of consumer credit market following criticism by MPs

After being described as ‘timid’ and ‘ineffective’ by the parliamentary body the Public Accounts Committee (PAC), the Office of Fair Trading (OFT) responded to the criticisms the Committee made of its regulation of consumer credit.

The PAC criticised the OFT in a number of areas, including: not imposing fines on companies, revoking too few licences and taking too long over this when they do take action, not understanding the industry, not gathering enough information about firms it regulates and charging fees that were too low.

The OFT pointed out that it had taken disciplinary action against 85 consumer credit firms in the previous financial year, and that the Consumer Credit Licences of a number of firms had been revoked. Reference was also made to the OFT’s payday lending compliance review, after which the 50 leading lenders were given 12 weeks to improve their practices or face enforcement action. This 12 week period expired at the start of June 2013, and it remains to be seen what action will be taken against some of these lenders.

An OFT spokesperson also made reference to a December 2012 report from the National Audit Office (NAO), which acknowledged that the OFT operated under a number of constraints, such as having an annual budget of only £11.5 million and only 120 staff to supervise consumer credit firms. As a result of these factors, the OFT cannot routinely supervise firms and can only commence investigations when complaints are made, or it receives other indications of non-compliant behaviour. The OFT describes itself as operating a ‘licensing regime’ rather than a ‘supervisory regime’, indicating that it only acts against firms when it receives customer complaints, or receives information from bodies such as Citizen’s Advice, the Financial Conduct Authority (FCA) and the Financial Ombudsman Service. The NAO report acknowledged that, despite these constraints, for every £1 spent on enforcement in the financial year 2010/11 by the OFT, consumers saved £8.60.

“We are disappointed that the Committee has not acknowledged the constraints of the legislation under which the OFT currently operates which, as the NAO found, was not designed to provide a supervisory approach to addressing potential consumer harm. As the NAO recognised, these constraints include a lack of regulatory powers and the ability to impose fines only in very limited circumstances,” said the spokesperson.

The spokesperson went on to welcome the fact that, in April 2014, responsibility for consumer credit regulation will transfer from the OFT to the FCA, which will have additional resources and powers to monitor and discipline credit firms. The OFT press release concluded: “We strongly support the Government’s decision to give the Financial Conduct Authority new supervisory powers from 2014 to enable them take a more interventionist approach with increased resources for the new regime.”


OFT payday loan regulation ‘ineffective’

The Public Accounts Committee (PAC), a committee of MPs, has heavily criticised the Office of Fair Trading (OFT) for not regulating the consumer credit industry adequately. A comprehensive 73-page report, published on 30 May 2013, described the OFT as ‘ineffective’ and ‘timid rather than tough’.

The extent to which the OFT understood the industry was also questioned, and it was said that arrangements to prevent ‘phoenixing’ – the practice whereby key individuals of banned firms then start new companies – were inadequate. It was remarked upon that the OFT did not collect data on the total amounts lent by each firm, nor about the number of customers they had.

Payday loan regulation came in for particular criticism, with reference made to the OFT having failed to stop the ‘disgraceful practices’ which the PAC believes are prevalent in this sector. The report noted that the 50 largest payday lenders have been given 12 weeks to improve their practices, a period which expired in early June 2013, and the PAC said of this: “We will be expecting the OFT to show that this marks the start of a genuine step up from the timid approach that was evident at our hearing—and to follow through on its threat to revoke licences if these lenders do not mend their ways.”

The PAC suggested that the OFT could regulate the industry better if it charged more realistic fees for Consumer Credit Licence applications. The flat £1,075 fee was described as ‘ridiculously low and unrelated to the size of the business’, and the report remarked that the largest firms pay the same as the smallest.

The report went on to criticise the OFT for not fining companies who are guilty of malpractice; and commented that very few firms have their Consumer Credit Licences removed, and that the process can take up to two years.

Committee chairwoman Margaret Hodge MP said: “The Office of Fair Trading has been ineffective and timid in the extreme. It doesn’t understand the market – how much each firm lends and who its customers are – and can’t be certain if directors of companies that have run into trouble are now running other companies. The regulatory regime must stop tiptoeing round the problem.”

Richard Lloyd, executive director of consumer group Which, said of the report: “This is a damning verdict on the credit market and the OFT’s failure in the past to step in and protect consumers. It underlines once more why a crackdown is urgently needed to tackle unscrupulous high-cost lenders.”

Since February 2013, the OFT has had the power to remove a firm’s licence with immediate effect, but has indicated that it will only use this power on rare occasions. As of early June 2013, this power is yet to be used, with all firms for whom the OFT has tried to remove the licence allowed to continue trading while their appeals are heard.

From April 2014, regulation of consumer credit will transfer from the Office of Fair Trading (OFT) to the Financial Conduct Authority, which will have additional resources and greater powers to discipline credit firms.


PPI dominates as annual FOS complaints top 500,000

The Financial Ombudsman Service (FOS) annual review shows a massive increase in the number of complaints being made about the UK’s financial institutions. The review revealed that the FOS, which adjudicates on complaints where the firm does not resolve the matter to the customer’s satisfaction, received 508,881 complaints in the period from 1 April 2012 to 31 March 2013. This figure represents an increase of 92% on the previous 12 months, by far the largest such increase in recent years.

Complaints about payment protection insurance (PPI) had comprised more than half the Ombudsman’s workload for the previous two years, but here the proportion of PPI complaints was even higher, with the 378,699 complaints about this product representing 74% of the total. The PPI figure represents a massive increase of 140% compared to 2011/12. The FOS has taken on large numbers of extra staff in recent years to cope with its workload, but even so, it had only expected to receive 165,000 PPI cases in the year 2012/13. The second most complained about product was credit cards with 19,634 grievances.

76% of the complaints received concerned the UK’s banks, with four banking groups responsible for 62% of the total. The four largest banking groups – Lloyds, Barclays, RBS and HSBC – were responsible for 70% of PPI complaints.

A higher proportion of complaints than ever before, at 24%, came from customers aged over 65. The review contends that many complaints from older people concerned PPI.

As well as PPI, there were significant increases in the numbers of complaints regarding certain other areas of financial services, even if the total numbers in many cases remain small. Payday loan complaints were up by 83% to 542, PEP complaints rose by 159% to 132, income drawdown complaints rose by 101% to 189 and term assurance complaints rose by 149% to 3,572. The area showing the largest percentage decrease was structured investment products, where complaints were down by 22%.

Some 11% of cases are currently taking more than 12 months to complete, and this rises to 19% for PPI, evidence of the significant workload the FOS faces. Some 223,229 complaints were closed during the 12 month period, with the FOS finding in the customer’s favour in 49% of cases, but this figure rises to 65% for PPI. Uphold rates for individual firms are not included in the review, but the FOS has previously published data showing that, in the second half of 2012, more than three quarters of PPI complaints made regarding Barclays, Lloyds TSB and Bank of Scotland were upheld by the Ombudsman.

Chief ombudsman Natalie Ceeney laid the blame for the increase on financial firms who failed to handle complaints effectively. “As levels of confidence in financial services have eroded, it is disappointing that we still haven’t seen any significant improvement in complaints handling. Too many financial businesses still seem unable to sort out problems themselves, without the ombudsman having to get involved,” said Ms Ceeney.