Irresponsible Lending - OFT Consultation

[Amethyst]

OFT launches consultation on irresponsible lending

91-08 1 August 2008

The OFT has today launched a public consultation on the scope of its project looking at irresponsible lending in UK consumer credit markets.

The consultation follows major changes to the Consumer Credit Act, which include the identification of irresponsible lending as a matter to which the OFT must have regard when it considers businesses fitness to hold a consumer credit licence.

Download consultation paper (pdf 134 kb).
The OFT's irresponsible lending project, of which this consultation is the first stage, will involve wide consultation with business, consumer groups and other stakeholders. One of the key outcomes of the project is expected to be clear guidance on lending behaviours and practices which the OFT considers to be irresponsible.
The study will consider all forms of consumer credit lending which the OFT licences and all participants in the market, including lenders, brokers and other intermediaries.
The initial phase of this project involves full consultation to define the range and nature of the project. The issues the review could consider include the advertising and marketing of products, selling techniques, product design, use of credit scoring techniques, appropriateness of products to borrowers, sale of associated products and management of consumers' accounts including handling of defaults and arrears.
Ray Watson, OFT Director of Consumer Credit, said:
'Credit is an important part of everyday life so it is vitally important that consumers are safeguarded from irresponsible lending and that businesses have clarity about what this constitutes. The OFT looks forward to hearing from a wide range of businesses, consumers and representative bodies on these issues.'

The OFT will be contacting key stakeholders directly.
NOTES

1. The Consumer Credit Act 1974 requires 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.
2. The Consumer Credit Act 2006 which came into force in April 2008 sets out a new framework and responsibilities for the OFT in administering the consumer credit licensing regime. Among a number of important changes, the Act introduces two concepts which have a particular bearing on the issue of responsibility in lending. These are the consideration of credit competence in the assessment of fitness and the explicit identification of evidence of irresponsible lending as an unfair business practice. Both elements may be taken into account by the OFT when assessing the fitness of licensees and applicants to hold a credit licence. See press release 45/08.
3. The OFT has previously provided some clarification on what constitutes irresponsible lending in its general fitness guidance (OFT 969) and there is pre-existing guidance, particularly that available in the OFT's 'Non status lending guidelines' issued in 1997.
4. The OFT can refuse or revoke a licence if it decides that a trader is not fit to hold such a licence.
5. There are approximately 120,000 consumer credit licence holders in the UK.

3 IRRESPONSIBLE LENDING PROJECT: SUMMARY
Objective/outcomes


3.1 The objective of the irresponsible lending project (the project) is to provide
a clear OFT position on the test for irresponsible lending under section 25
of the CCA.

3.2 It is expected that the outcomes of the project will include the publication
of guidance setting out the basic standards expected of licensees in
relation to irresponsible lending practises.

[Amethyst]

Re: Irresponsible Lending - OFT Consultation

Section 25 of CCA 1974 is 25 Licensee to be a fit person



Report January 2008

Business activities for which we are likely to require a CRP include
secured sub-prime lending and lending in the home. One of the OFT's
main regulatory interests in these areas will be to ensure that lending
takes place responsibly. 'Irresponsible lending' is now cited specifically
in the fitness test as a business practice that we may consider deceitful
or oppressive or unfair or improper. Lending irresponsibly will therefore
call into question your fitness to be licensed. When considering your
fitness, we may ask you to explain the policies and practices that you
intend to follow, for example, in assessing ability to repay a loan.
2.14
Lenders may take different approaches to responsible lending in line with
variations between the needs of different sectors of the market.
However, lenders should always take reasonable care in making loans or
advancing lines of credit and should take full account of the interests of
consumers in doing so. They should undertake proper and appropriate
checks on the potential borrower's creditworthiness and ability to repay
the loan and to meet the terms of the agreement. The checks should be
proportionate, taking account of the type of agreement, the amounts
involved, the nature of the lender's relationship with the consumer, and
the degree of risk to the consumer

Current Guidelines = http://www.oft.gov.uk/shared_oft/rep...t/oft192v2.pdf

General principles
6 There are a number of general principles underlying these guidelines, of which the
following are the most important:
! there should be transparency in all dealings with potential and actual
borrowers, with full and early disclosure and explanation of all contract terms
and conditions and all fees and charges payable
! there should be no high-pressure selling, and adequate time should be allowed
for the borrower to reflect on the terms and conditions of the loan and to
obtain independent advice before signing
! advertising and other promotional material should not mislead, and there
should be no cold-calling or canvassing off trade premises without the
borrower’s prior consent
! brokers should disclose at the outset their status with regard to the borrower
and the lender, and the extent of the service offered to the borrower, together
with any brokerage fee or commission payable by the borrower or the lender
! lenders should take all reasonable steps to ensure that brokers and other
intermediaries regularly marketing their products do not engage in unfair
business practices, or act unlawfully, and that they serve the best interests of
the borrower
8
! contract terms and conditions should be fair, and should be written in plain
English to ensure as far as possible that borrowers understand the nature of the
loan agreement and their rights and responsibilities under it
! there should be responsible lending, with all underwriting decisions subject to
a proper assessment of the borrower’s ability to repay and taking full account
of all relevant circumstances
! any ancillary charges (for example, on default or early settlement) should be
brought to the attention of the borrower before the agreement is entered into
and should reflect as closely as possible the costs reasonably incurred by the
lender and not already recovered at the time when the charges are made.

[Tempty]

Re: Irresponsible Lending - OFT Consultation

Some very interesting stuff there Ame, particularly this part :

there should be no high-pressure selling, and adequate time should be allowed
for the borrower to reflect on the terms and conditions of the loan and to
obtain independent advice before signing

Hmmmm sign now or we'll take all your money and leave you with nothing to live on!!
nope no pressure there.... none what-so-ever

[scoobydoo]

Re: Irresponsible Lending - OFT Consultation

hmmm

bit like shutting the stable door after the horse has bolted.

[Niklowe]

Re: Irresponsible Lending - OFT Consultation

There must be several points there that jester can use in his case.

8
! contract terms and conditions should be fair, and should be written in plain
English to ensure as far as possible that borrowers understand the nature of the
loan agreement and their rights and responsibilities under it

That one would be paramount. As far as I can see the all monies mortgages are quietly deliberately concealed in jargon in the small print.

[Jester]

Re: Irresponsible Lending - OFT Consultation

Yes, I picked up on that on myself. Might be interesting to make a call into the OFT in regard to this and the 'stealth' inclusion of all-monies clauses as I was unaware of it and am sure that many others have similar mortgages and not be aware of this either.

I believe Exc has contacts within the OFT. Maybe I can get their consideration of whether this has been broken by RBS in their opinion.

There must be several points there that jester can use in his case.



That one would be paramount. As far as I can see the all monies mortgages are quietly deliberately concealed in jargon in the small print.

[Amethyst]

OFT Irresponsible Lending Consultation

OFT launches consultation on irresponsible lending

91-08 1 August 2008

The OFT has today launched a public consultation on the scope of its project looking at irresponsible lending in UK consumer credit markets.

The consultation follows major changes to the Consumer Credit Act, which include the identification of irresponsible lending as a matter to which the OFT must have regard when it considers businesses fitness to hold a consumer credit licence.

Download consultation paper (pdf 134 kb).
The OFT's irresponsible lending project, of which this consultation is the first stage, will involve wide consultation with business, consumer groups and other stakeholders. One of the key outcomes of the project is expected to be clear guidance on lending behaviours and practices which the OFT considers to be irresponsible.
The study will consider all forms of consumer credit lending which the OFT licences and all participants in the market, including lenders, brokers and other intermediaries.
The initial phase of this project involves full consultation to define the range and nature of the project. The issues the review could consider include the advertising and marketing of products, selling techniques, product design, use of credit scoring techniques, appropriateness of products to borrowers, sale of associated products and management of consumers' accounts including handling of defaults and arrears.
Ray Watson, OFT Director of Consumer Credit, said:
'Credit is an important part of everyday life so it is vitally important that consumers are safeguarded from irresponsible lending and that businesses have clarity about what this constitutes. The OFT looks forward to hearing from a wide range of businesses, consumers and representative bodies on these issues.'

The OFT will be contacting key stakeholders directly.

[Amethyst]

Re: OFT Irresponsible Lending Consultation

AMI-Our Response

Association of Mortgage Intermediataries response - http://www.a-m-i.org.uk/news/OFTResponseAMI241008.pdf

not highly exciting I have to say

Q3. Are there any other factors which you think should not be included within the
scope of the project?
We support the fact that buy-to-let lending has not been included within the scope of
consumer credit lending

[scoobydoo]

Re: OFT Irresponsible Lending Consultation

I am really glad that at least this is being looked at.

I agree it is a joint resposibility ,but the lenders have to consider that up to now they were trusted and a lot of customers believed that if they were being offered the loan that the lender did know what they were doing and that the security was there and that if they were lending 5 or 6 times salary they must know what they are doing.

The lenders should be regulated to keep records showing they have checked the loan thoroughly and the borrower should have clear statements to sign that show that they really do know what they are signing.

And If I as a past BS employee find it sometimes difficult to cut through all the jargon and "selling" that goes on now when you take out a mortgage then I really dont know how everyone copes with all the small print.

The only thing is that I think all this is a bit late for some people.