Consumer affairs minister, Norman Lamb, and financial secretary, Mark Hoban, today announced the government is to give the Office of Fair Trading (OFT) power to suspend consumer credit licences with immediate effect.
With these new powers, the OFT will be able to prevent companies that provide either services or goods on credit, lend money or help with debt problems from trading with immediate effect.
This marks an improvement on the current situation, which allows the OFT to suspend and revoke consumer credit licences, but allows the companies in question to continue trading if they choose to contest the decision. This process can take up to two years in total and can cause significant problems for the consumers dealing with them.
Proactive consumer watchdog
Which? executive director, Richard Lloyd, said: ‘This is a good step towards ensuring the regulator has the powers it needs to be a more proactive consumer watchdog.’
He added: ‘The government must now introduce wider, tougher rules for payday lenders to better protect consumers, make sure the regulator has the resources it needs, and ensure there is no gap in supervision as these powers transfer to the Financial Conduct Authority.’
Financial Services Bill
The Financial Services Bill is currently making its way through the House of Lords, and this power will be added to it at the committee stage, with a plan to have the power in effect by early 2013.
These powers will be given temporarily to the OFT to help them act as an effective regulator until April 2014, when the newly formed Financial Conduct Authority will take over matters regarding credit regulation.
Financial secretary, Mark Hoban, commented: ‘The government has acted by strengthening the powers of the OFT and by moving the regulation of consumer credit to the FCA which will have a much broader range of powers to tackle lenders that break the rules.’
Consumer affairs minister, Norman Lamb, said the change will ‘put a stop to companies who exploit vulnerable consumers’.
He added: ‘It will also give a boost to legitimate businesses, with the swift suspension of unscrupulous traders.’
Which? executive director, Richard Lloyd, warned: ‘Our research has found that people taking out payday loans are often caught in a downward spiral of debt so it is important that the Office of Fair Trading will have the power to instantly suspend the credit licences of unscrupulous lenders caught breaking the existing rules.’
Research published by Which? in May found that more than 60% of people who took out payday loans were using the money to pay for household bills or buying other essentials like food, nappies and petrol. The figures show an alarming picture of people getting trapped in a downward spiral of debt, caught by exorbitant penalty charges because they cannot afford to pay back the loan on time.
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