08Jul

The Office of Fair Trading (OFT) Annual Report, published in June 2012, details the extent of the disciplinary action taken against consumer credit firms.

The most striking statistic is that since the OFT conducted its review of the debt management sector in September 2010, 90 debt management companies have either been stripped of their Consumer Credit Licence or had applications for licences rejected. All 11 firms who appealed these decisions to the First-Tier Tribunal were unsuccessful. The report makes specific reference to the withdrawal of the licence from Parkgate UK Ltd, after it sent a threatening letter to a debt collection firm.

Enforcement action of one kind or another was taken by the OFT against 106 credit firms in the 12 months from 1 April 2011 to March 31 2012 – the period covered by the Report – which included further action against debt managers. Debt management companies exist to assist consumers in serious debt difficulty to improve their situation, yet at the end of 2010 the OFT felt it necessary to warn 129 such firms about their practices. Misleading unsolicited mailings and use of misleading trading names were some of the reasons the OFT intervened against debt management firms.

Revised guidance for debt management firms was issued in March 2012. This guidance spelt out that the OFT believed that the following practices were unfair:

  • Sending unsolicited marketing texts or e-mails
  • Having staff remuneration schemes that may encourage them to give unsuitable advice
  • Falsely implying that the firm was a charity or helpline

Enforcement actions in other areas of consumer credit saw Yes Loans, a large unsecured credit broker; and Log Book Loans, the UK’s largest logbook loan company, become of the biggest firms to lose their licence. 19 unlicensed lead generation websites targeting vulnerable and sub-prime credit borrowers were closed down by the OFT during the year.

The OFT also responded to a super-complaint from Citizens Advice, regarding the marketing and charging practices of credit brokers, where the key areas of concern were up-front fees and cold calling. This prompted the OFT to revise its guidance for credit brokers, imposing new requirements regarding fees, commission disclosure and the right to refunds; and to recommend new legislation prohibiting up-front fees.

New guidance for credit businesses when dealing with borrowers with mental capacity limitations was also published.

The payday lending sector has attracted much criticism from consumer groups and politicians, and the report revealed that the OFT has launched a compliance review of this sector, and threating to withdraw the licence of certain lenders. The OFT will visit 50 major payday lenders, and has already reviewed over 50 payday lending websites and written to relevant trade bodies requesting improvements to these sites.

According to the OFT, it delivered a benefit to the taxpayer over the year of an estimated £402 million, compared to a cost to the taxpayer of £49 million.

The report can be viewed at http://www.oft.gov.uk/shared_oft/annual_report/2012/OFT_Annual_Report_and_Resou1.pdf, with the main information regarding consumer credit on pages 21, 22, 25, 34& 35.