The Office of Fair Trading (OFT) has issued new guidance for businesses and consumers to help identify companies that are lending irresponsibly.
The new guidelines explain what may constitute irresponsible lending under the terms of the Consumer Credit Act, and cover each stage of the lending process – from the pre-contract stage of advertising credit through to the handling of consumers who fall into arrears or default on credit agreements.
In a statement, the OFT said it expects ‘all creditors to have regard to the guidance so that they can avoid engaging in irresponsible lending practices.’
OFT irresponsible lending guidance
The OFT’s new guidelines make clear that lenders should:
- Not use misleading or oppressive behaviour when advertising, selling or seeking to enforce a credit agreement ;
- Make a reasonable assessment of whether a borrower can afford to make repayments in a sustainable manner;
- Explain the key features of the credit agreement in order to empower the borrower to be able to make an informed choice;
- Monitor the borrower’s repayment record during the course of the agreement, offering assistance where borrowers appear to be experiencing difficulty;
- Treat borrowers fairly and with forbearance if they experience difficulties.
Roy Watson, OFT Director of Consumer Credit, said: ‘Our guidance makes clear to lenders the sort of practices that will be considered as evidence of irresponsible lending as we monitor businesses and their fitness to hold a credit licence. This guidance helps all lenders avoid engaging in behaviour or practices which may lead to action by the OFT.’
The Which? verdict
Which? credit and debt expert Martyn Saville said: ‘The introduction of this new guidance is a welcome move by the OFT, but it remains to be seen whether the rules will translate into a real-life crack-down on irresponsible lenders. It’s to be hoped that they will result in better assessment of people’s affordability to repay loans and credit cards – and better treatment of those who find themselves in financial difficulty.’
If you’re on the lookout for a competitive credit card or personal loan, be sure to check out our independent reviews. Meanwhile, if you need help with handling existing debts, read the Which? Dealing with debt advice guide.
Which? Money when you need it
You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.
Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.
Or for money-saving tips, and news of how what’s going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast
For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.