OFFICE OF FAIR
TRADING News Release (13/09) issued by COI News Distribution
Service. 13 February 2009
The OFT today
launched a consultation on draft guidance for businesses engaged
in second charge lending.
Second charge loans, or 'homeowner loans', involve
consumers with an existing mortgage taking out further personal
borrowing secured against their home. Defaulting on a second
charge loan can ultimately lead to repossession. Firms offering
such loans must be licensed by the OFT.
The consultation follows a government review of arrears and
repossession policies and practices in the second charge sector.
The review did find examples of good practice within the market
but, as with other lending markets, there is scope for spreading
good practice more widely.
The draft guidance covers a range of issues such as customer
care, advertising and selling techniques, contractual terms and
conditions, and practices around managing arrears or defaults. It
sets out the standards of behaviour that the OFT expects from
those businesses engaged in second charge lending.
The guidance is designed to complement existing OFT guidance for
lenders. Responses to the consultation on this guidance will also
be taken into account as part of the wider irresponsible lending
project being undertaken by the OFT. Guidance on irresponsible
lending is to be published in autumn 2009.
The deadline for responding to the consultation is 8th May.
NOTES
1. The consultation can be found on the OFT's
website at http://www.oft.gov.uk/advice_and_resources/resource_base/consultations/current/second-charge
2. The Government announced the OFT's intention to issue
guidance in the 2008 Pre-Budget Report (http://www.hm-treasury.gov.uk/d/pbr08_completereport_1721.pdf)
3. Defaulting on a second charge loan (or other subsequent
secured loan) can ultimately lead to repossession and if there is
a shortfall in funds, the debtor can still be left with a debt
following loss of their property.
4. The Financial Services Authority (FSA) regulates first charge mortgages.
5. Many of the large lenders in the sector are members of the
Finance and Leasing Association (FLA) which has recently published
Good Practice Guidelines for Second Charge Mortgages setting out
standards which go over and above those required by statute. The
OFT considers these guidelines to be a welcome step in the right direction.
6. 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.
Following implementation of the OFT's new powers under the
Consumer Credit Act 2006 on 6 April 2008, businesses could also
have specific 'requirements' imposed on them by the OFT.
If such a requirement was not complied with, the business
concerned could be subject to a financial penalty of up to
£50,000. The OFT can also refuse or revoke a licence if it decides
that a trader is not fit to hold one. The OFT can take into
account any circumstances which appear to be relevant when
considering the fitness of an applicant or licensee, including
evidence that the company has contravened guidance published by
the OFT.
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