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OFT welcomes plans to strengthen credit licensing laws

PN 55/03     8 May 2003

Government plans to modernise consumer credit licensing and to introduce a wider range of sanctions against rogue credit businesses were today welcomed by the OFT.

In its response to the Department for Business, Enterprise and Regulatory Reform's consultation on the future of credit licensing (see note 1), the OFT agreed that a wider range of penalties and other changes are needed to ensure more effective regulation of the credit industry and greater consumer protection.
Download our note summarising our response to the Department for Business, Enterprise and Regulatory Reform consultation Modernising consumer credit to improve consumer protection (pdf file, 109 kb)

Currently the OFT only has the option of removing a licence. The Government proposes to introduce a range of sanctions short of licence revocation, such as fines, undertakings and licensing conditions. This would allow the OFT to tailor the regulatory response according to the nature of the problem and the risk to consumers. Failure to change behaviour or comply with licensing conditions could lead to a fast-track procedure to remove a licence.

The Government is also proposing to change the statutory fitness test. Under a strengthened licensing regime, the OFT would want to place a greater emphasis on a positive assessment of future fitness, particularly where there are higher risks or vulnerable consumers, to ensure that businesses deal fairly with consumers.

Other Government proposals welcomed include:

• a power for the OFT to make rules governing the conduct of business of licensees, in addition to fitness guidance. This would allow unfair practices to be spelt out in detail and fines or other sanctions to be applied if the rules were broken
• stronger powers to obtain information relevant to fitness. The powers should apply throughout the period of a licence, and should extend to third parties. The requirement to notify material changes in circumstances should also be strengthened. The OFT does not currently have access to criminal records for the routine screening of applicants
• a power to impose fines. This might be used against breach of licence conditions or undertakings, or conduct of business rules, with the possibility of more large-scale fines for serious cases
• additional funding for trading standard departments to support local monitoring and enforcement of the legislation.

Penny Boys, OFT Executive Director, said:

'Consumers need protection in the market for credit, which can be a high-risk product and can be complex and difficult to understand. The licensing system should allow the OFT to screen out unfit traders and target regulatory action where it is needed, without imposing unnecessary burdens on business. The Department for Business, Enterprise and Regulatory Reform review is an opportunity to modernise the licensing system so that it better supports a competitive market that works well for consumers.'

The OFT has produced a note summarising its response to the Department for Business, Enterprise and Regulatory Reform consultation. Download Modernising consumer credit to improve consumer protection (pdf file, 109 kb)

In the first quarter of 2003 the OFT, under its existing powers, refused nine licence applications, revoked four existing licences, had 269 applications withdrawn after they were challenged by the OFT, sent 69 warning letters and issued 14 minded to refuse and eight minded to revoke notices. (For more details see press release 50/03)

NOTES

1. 'Review of The Consumer Credit Act 1974 - Consumer Credit Licensing - A Consultation Document on the licensing regime of the Consumer Credit Act 1974' was published by the Department of Trade and Industry on 30 January 2003 (see Department for Business, Enterprise and Regulatory Reform press notice number P/2003/55).

2. The Consumer Credit Act 1974 requires most businesses that offer goods or services on credit or lend money or are involved in activities relating to credit or hire to be licensed by the OFT. The OFT can refuse or revoke a licence if it decides that a trader is not fit to hold one.

3. Typically the OFT handles around 30,000 applications and renewals of licences a year and around 205,000 consumer credit licences are current. Around 800 cases are challenged each year, including 250-300 warning letters issued and the refusal or revocation of 70-80 licences.

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