From early 2013, the Office of Fair Trading (OFT) will be handed the power to suspend firms’ Consumer Credit Licences with immediate effect in certain cases. The OFT regulates consumer credit in the United Kingdom and requires all firms engaged in credit activities to hold a licence. The OFT can decide to revoke a licence in case of a breach of the Consumer Credit Act, a failure to treat customers fairly, or a criminal conviction. However, all firms are entitled to appeal to the First-Tier Tribunal against the removal of their licence. During the 28 day period in which they can decide whether to appeal and throughout the appeal process, the firm’s licence remains in force, even though the appeal process may take up to two years.
In July 2012, Treasury minister Mark Hoban and consumer minister Norman Lamb announced plans to allow the OFT to remove the licence immediately in cases where there is an urgent need to protect customers. Consultation will take place in autumn 2012 as to how the OFT’s new power will be applied in practice.
UK society does operate on an ‘innocent until proven guilty’ basis, however if the regulator has found such serious failings in a firm that it believes the licence should be removed, is it fair to customers to allow the firm to continue as if nothing had happened? Convicted criminals are often allowed to appeal against sentences for serious crimes, but they cannot postpone their custodial sentence until the appeal has completed.
“This will put a stop to those companies who exploit vulnerable consumers whilst dragging matters through a slow legal process,” said Mr Lamb. “It will also give a boost to legitimate businesses, with the swift suspension of unscrupulous traders. The new measure is part of a concerted approach to strengthen protection around consumer credit, including issues such as payday lending and debt management. We want to encourage, and give the tools to, consumers to take sensible decisions.”
Payday lender MCO Capital Ltd was stripped of its Consumer Credit Licence and fined £544,505 by the OFT in August 2012, yet continued trading for several weeks as it exercised its right to have 28 days to decide whether to appeal.
Other recent cases where the OFT has revoked a licence include Sunderland-based money lender Kevin Duke, who used the trading name ‘Mr Superloan’, in July 2012; and East London-based second charge mortgage lender Reddy Corporation, owned by Dharam Gopee, in August 2012.
The new OFT powers will be granted via an amendment to the Financial Services Bill, a Bill which will bring about wide-ranging changes in financial services regulation. It is highly likely that the Bill will result in the new Financial Conduct Authority (FCA) taking over consumer credit regulation from the OFT, however the Government has said that this will only happen, “if and when it has identified a model of FCA regulation that is proportionate for the different segments of the consumer credit market.”