The Office of Fair Trading (OFT) is currently
consulting on the terms of formal guidance to be issued on
irresponsible lending practices. This concerns its licensing powers
under the Consumer Credit Act (CCA).
Under Section 25 (2B) CCA 1974, as amended by CCA
2006, involvement in irresponsible lending is now a statutory
criterion in relation to fitness to hold a consumer credit licence.
Relevant draft guidance was issued by the OFT in July, with
invitations to comment by 21 October.
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Where credit agreements are introduced by
intermediaries like motor dealers (who are licensed as credit
brokers), both intermediary and principal could potentially be held
responsible as licensees for actions by the intermediary.
Enforcement of the rules will be proportionate to any deemed
infringements, and can include civil penalties as well as the
ultimate sanction of loss of licence.
Specific rules at the introduction stage include a
requirement for ‘interactive’ oral explanations of agreements, with
customers encouraged to ask questions. Customers should also be
told of special contract features, and the OFT specifies in the
case of HP and conditional sale this should include the voluntary
termination (VT) rights and restrictions on repossessions which
kick in at various stages of the contract.
However, these proposals are qualified. The OFT
says that in a “busy retail outlet” the oral explanation rules can
be satisfied through a helpline to the lender. It is not entirely
clear whether dealers will be expected to tell customers about VT
rights, or whether they should merely be told by the finance
company if they use the helpline.
Lender helplines could play a more important
inception role in point-of-sale agreements from October next year,
when the latest Consumer Credit Directive (CCD) must be
implemented, as cooling-off periods will then be required for the
credit (but not for related sales of goods).
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By GlobalDataCreditworthiness
assessments
Affordability of credit plays a key part in the new
irresponsible lending rules. The CCD requires assessments of
creditworthiness, and this may soon force lenders to obtain
evidence of income in all cases.
For licensing purposes, the OFT says irresponsible
lending practices “could include, where applicable, failure to
verify details of current income… by checking hard copies of
payslips… or accountants’ letters”.
Nobody doubts the general importance of fraud
prevention. Yet some will consider the OFT is exceeding its
consumer protection remit if its conduct-of-business rules include
prescribed safeguards against customer fraud.
The OFT proposes to class as an unsatisfactory
business practice “use of… promotional material [including
trading names]… implying that loans are available regardless of
the borrower’s financial circumstances”.
This perhaps reflects on such words as
‘Yes/Approved’ which have been seen within trading names in
sub-prime motor finance.
With the CCD yet to be implemented, the OFT plans
to review its irresponsible lending guidance six months after
finalisation.
