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85 consumer credit firms in the previous financial year, and that the Consumer Credit Licences of a number of firms had been revoked.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.”