WIREDGOV

The OFT has today published guidance on the irresponsible lending element of the test of fitness to hold a credit licence.

The guidance provides clarity for businesses and consumers about behaviour the OFT considers may constitute irresponsible lending practices under the Consumer Credit Act. It covers each stage of the lending process, from the pre-contract stage of advertising credit through to the handling of arrears and default on agreements.

Download Irresponsible lending - OFT guidance for creditors (pdf 860kb).

The OFT expects creditors to have regard to the guidance so that they can avoid engaging in irresponsible lending practices. For example, it makes clear that creditors should:

• not use misleading or oppressive behaviour when advertising, selling, or seeking to enforce a credit agreement
• make a reasonable assessment of whether a borrower can afford to make repayments in a sustainable manner
• explain the key features of the credit agreement in order to empower the borrower to be able to make an informed choice
• monitor the borrower's repayment record during the course of the agreement, offering assistance where borrowers appear to be experiencing difficulty, and
• treat borrowers fairly and with forbearance if they experience difficulties.

Ray Watson, OFT Director of Consumer Credit, 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.'

NOTES

1. The OFT consulted on the scope of the irresponsible lending guidance on 1 August 2008 and published a response to that consultation on 19 December 2008, saying it would look at all stages of a credit transaction as part of this project.
2. The OFT undertook a further consultation on the content of the guidance on 30 July 2009. That consultation closed on 21 October 2010. 80 formal consultation responses were received and a summary of responses document will be published shortly.
3. The Consumer Credit Act 1974 (the Act) requires businesses that offer goods or services on credit and/or are involved in activities relating to credit or hire to be licensed by the OFT.
4. 2006 reforms to the Act include a new provision, section 25 (2B), which makes explicit that amongst the business practices which the OFT may consider to be deceitful or oppressive or otherwise unfair or improper, for the purposes of considering fitness to hold a consumer credit licence, are practices that appear to the OFT to involve irresponsible lending. This also came into effect on 6 April 2008.
5. Under the 1974 Act, the OFT has a range of enforcement powers that include the imposition of 'requirements' and financial penalties and the refusal or revocation of consumer credit licences. The OFT can take into account any circumstances which appear to it to be relevant when considering the fitness of an applicant or licensee, including evidence that the company has contravened guidance published by the OFT.
6. Other examples of OFT guidance can be found on the Consumer Credit Act section of the OFT website.