Synopsis: |
For the consumer credit market, since the financial crisis less has been borrowed through mainstream lending and there has been a significant increase in other types of lending, such as home credit and payday lending. As banks lend less, and consumers are increasingly turning to other providers it is essential that the regulator is aware of emerging risks and is proactive in protecting the consumer from malpractice. The Office of Fair Trading (OFT), the current regulator of this sector, has not been effective in regulating the consumer credit market, where unscrupulous behaviour by some firms is estimated to cost consumers at least GBP450 million a year. It has failed to proactively identify risks of malpractice. In enforcement the OFT has never fined any of the 72,000 firms with licences and has revoked very few licences. The process can take up to two years, leaving consumers unprotected from poor practice. It does not effectively prevent "phoenixing" whereby individuals set up new credit businesses under a different name when they have had a licence revoked.The resources available to the OFT are based on the licence fees it charges lenders, which are low and unrelated to the size of the business. The OFT lacks basic information about the consumer credit market such as the amount of lending by each firm. It has not attempted to quantify the level of harm due to firms not complying with the Consumer Credit Act. This basic information, broken down by types of consumers and products, is essential if the regulator is to better understand the market and target its resources in the most effective way to protect customers. |