A top-level industry summit – bringing together the OFT, the DMA, the Ministry of Justice, Citizens Advice, Ofcom and the Information Commissioner’s Office – is being called to tackle the aggressive practices of debt management firms.
The round-table discussion will focus on lead generation, data sharing and warm calling by businesses in the credit and debt markets to determine whether consumers’ interests are being protected by current legislation and whether current business practices demand additional action.
The move is part of the OFT’s response to a super-complaint filed by Citizens Advice. The response suggests a number of businesses in the sub-prime, unsecured credit brokerage market have business models based on taking upfront fees for a service they are unlikely to provide.
Consumers are often not introduced to a loan in exchange for the fee or are offered loans that are different from those they expected. The evidence suggests some brokers also often fail to pay refunds to consumers who are entitled to them.
The OFT is asking the Government to consider whether new legislation is needed to address problems in the market, including a possible ban on upfront fees. The regulator estimates that 270,000 UK consumers paid an upfront fee to a sub-prime, unsecured credit broker in the last 12 months, typically between £50 and £70, on the expectation of being offered an unsecured loan. Complaints to Consumer Direct about these upfront fees more than doubled between 2008 and 2010.
The OFT today announced a series of measures relating to marketing and charging practices. In addition to ongoing robust, targeted enforcement action, including the revocation of consumer credit licences, the OFT is publishing two new pieces of guidance: on the standards it expects of credit brokers, and on debt management.
The new guidance, published today for consultation, sets out:
• that consumers may have a right to a refund of the upfront fee, under general contract law, where no introduction to a lender is made, and
• that the OFT expects brokers, six months after introducing a consumer to a lender, to advise any consumer who has not entered into a relevant agreement of their statutory right to a refund of the upfront fee.
The OFT also intends to publish revised debt management guidance later in June 2011, designed to tackle a range of bad practices it has identified. This follows a period of high profile enforcement action following a warning to 129 debt management businesses in September 2010.
John Fingleton, OFT chief executive, said: “The super-complaint from Citizens Advice has been timely given our ongoing work to protect vulnerable consumers from poor practice in the credit sector. Our evidence suggests some businesses are deliberately taking people’s money upfront with no realistic expectation of finding them the type of loan they need.
“We will continue to take robust enforcement action against businesses using unfair or improper business practices and we are providing new guidance making very clear the kind of behaviour we expect from the industry. We are also asking the Government to look at the impact of a ban on upfront fees.”
