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The OFT has a duty to protect the interests of consumers by ensuring the fitness of those holding or applying for consumer credit licences. The OFT also has a duty to monitor social and commercial developments relating to the provision of credit and related activities. The OFT will take pro-active action where appropriate to investigate and address issues related to these duties which may raise concerns.
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.
While a recent government review of arrears and repossession policies and practices in the second charge sector did find examples of good practice within the market, as with other lending markets, it also found there was some room for improvement in terms of spreading good practice more widely.
To facilitate improvements in practices in the second charge lending sector the OFT has recently published guidance (pdf 105 kb) for the industry. The guidance sets out the minimum standards the OFT expects from businesses engaged in second charge lending if they are to be considered fit to hold a licence. It covers the entire lending process including selling techniques, customer care, and practices around the management of arrears.
In addition to issuing that guidance the OFT also retains an ongoing monitoring role over the sector and, as a result of concerns about the practices of a number of particular lenders, has recently launched an investigation into their activities.
The OFT's enquiry is focused around the entire lending process from the initial lending decision up to the handling of arrears and defaults and possession actions. On the latter issue, the OFT is aware that since October 2008 lenders have had to comply with the Pre-action Protocol for Repossession Claims (pdf 36.28 kb) and the OFT will look to see how lenders have amended their practices to ensure compliance.
The OFT has now written to a number of lenders seeking further information to assess the level of consumer detriment in relation to the above. The OFT will provide an update on our work in this area in due course.
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