The U.K.’s retail credit market regulator lacks adequate information on lenders and should be more aggressive toward firms that breach consumer protection rules, a panel of lawmakers said.
The Office of Fair Trading, which will be replaced by the Financial Conduct Authority as the U.K.’s consumer credit regulator in 2014, has been “ineffective and timid in the extreme,” Margaret Hodge, an opposition Labour lawmaker who leads the Public Accounts Committee, said in an e-mailed statement.
Lawmakers are concerned by “widespread irresponsible behavior” in the market for pay-day loans, where firms lend small amounts for a short time at a high rate of interest, the panel said in its report today. The OFT has given the largest 50 pay-day lenders until the end of this month to improve their conduct or face losing their license to lend.
“Some of these lenders use predatory techniques to target vulnerable people on low incomes, encouraging them to take out loans which, when rolled over with extra interest, rapidly become out of control debts,” said Hodge. “Such disgraceful practices by the shabby end of the credit market are costing borrowers an estimated 450 million pounds or more each year.”
The OFT should also charge big lenders, such as credit card companies, higher license fees than smaller companies, Hodge said.
About 176 billion pounds ($267 billion) was lent to consumers in the financial year ending in March 2012, according to the report, making the U.K. market one of the largest in the 27-member European Union. The regulator has been too passive and has never fined any of the 72,000 firms that make up the industry, the panel said.
The lawmakers also recommended that lenders should be required to tell customers in advance how much they have to pay back including interest.
“Far from being timid, the OFT has taken strong, targeted action to tackle the areas of greatest risk to consumers,” an OFT spokesman said in an e-mailed statement. “In the last financial year alone the OFT has revoked the licences of some of the UK’s largest credit brokers and debt management firms, and taken formal action in more than 85 other cases.”
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