Credit firms warned: behave or lose licence

LENDERS have been warned that they could lose their credit licences if they mislead customers or use oppressive behaviour towards borrowers in arrears.

The Office of Fair Trading (OFT) yesterday published new guidance for lenders setting out what constitutes irresponsible lending practices under the Consumer Credit Act.

The guidance, which builds on consultation that began in August 2008, is aimed at clamping down on lenders using high-pressure sales tactics to lure consumers into agreements they cannot afford and follows recent rules set out by the credit card industry and the government restricting lenders' ability to offer unsolicited credit increases.

Ray Watson, director of consumer credit at the OFT, said: "Our guidance makes clear to lenders the sort of practices that will be considered as evidence of irresponsible lending as we monitor businesses and their fitness to hold a credit licence. This guidance helps all lenders avoid the risk of engaging in behaviour or practices which may lead to action by the OFT."

The watchdog said lenders would be expected to make reasonable assessments of whether borrowers could maintain repayments in a sustainable manner and avoid using misleading or oppressive behaviour when advertising, selling, or seeking to enforce a credit agreement.

It also told lenders to empower borrowers by explaining the key features of credit agreements and to monitor repayment patterns in order to offer assistance to those having difficulties. Borrowers in arrears should be treated "fairly and with forbearance", the OFT added.

Peter Tutton, debt policy officer at Citizens Advice, said irresponsible lending had played a significant part in consumer debt problems.

"The OFT has set out a clear framework for a more responsible lending environment for the future and sent a strong signal to lenders that they must get their house in order or face the consequences, including losing their credit licence," said Tutton.

"The focus on getting firms' practices and procedures right is a big step towards ensuring consumers are treated fairly and not encouraged into taking out unaffordable and unsustainable credit that lands them deep in debt."