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.