WIREDGOV

The OFT today announced a series of measures relating to marketing and charging practices used by credit brokers and debt management companies in response to concerns about their impact on vulnerable consumers.

In addition to ongoing robust, targeted enforcement action, including the revocation of consumer credit licences where appropriate, the OFT is publishing two new pieces of guidance: on the standards it expects of credit brokers, and on debt management.

The OFT is also asking the Government to consider whether new legislation is needed to address problems in the sub-prime unsecured credit brokerage market, including a possible ban on upfront fees. These measures are detailed in the OFT's response to a super-complaint from Citizens Advice, published today.

The OFT 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's super-complaint 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 new credit brokerage 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.

The OFT's super-complaint response also considers other possible problems in these sectors, including cold calling.

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.'

NOTES

1. The OFT's response to the Citizens Advice super-complaint is available on its project page.
2. The OFT's new Credit Brokerage Guidance is now published for consultation. The consultation closes on 23 August 2011.
3. On 28 September 2010, the OFT published its debt management compliance review, and in January 2011 provided an update on enforcement action.
4. For information on the Citizens Advice super-complaint, see www.citizensadvice.org.uk/cashing_in.htm.