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OFT gets new powers to close rogue financial firms
OFT gets new powers to close rogue financial firms
OFT gets new powers to close rogue financial firms
The Office of Fair Trading will soon have the power to instantly shut down dodgy financial companies who are ripping off customers.
Dodgy payday lenders and other unscrupulous credit firms could be shut down instantly thanks to new powers the Government is giving the Office of Fair Trading (OFT).
At the moment although the OFT can revoke a Consumer Credit License, the company concerned can appeal the decision. Having the case heard can take up to two years, during which the company can continue trading.
The new power of instant shutdown will be used where there is an urgent need to protect the interest of consumers.
What’s a Consumer Credit Licence?
Under the Consumer Credit Act 1974 most businesses that provide goods and services on credit or for hire, lend money or provide debt collecting or debt counselling services need to have a credit licence.
Trading in credit activities without a credit licence is a criminal offence. Companies and individuals caught trading without a licence face a fine or imprisonment. They would also find that credit agreements they set up with customers while unlicensed might be unenforceable.
Sole traders pay £575 for a licence and companies or partnerships £1,215. This includes a £140 levy which is used to fund dispute resolution service the Financial Ombudsman Service.
Companies with a licence will be listed in the Consumer Credit Public Register, which can be searched by anyone.
Why the rules need changing
There have been several companies that have been found to be breaking the rules but have carried on trading, which has enraged consumer groups such as Which?
One of the best-known cases was Yes Loans. In March the OFT found it unfit to hold a Consumer Credit Licence for "deceitful and oppressive business practices".
The firm targeted low credit-rated customers in need of credit and took £50 to £70 in upfront fees with the promise of finding them a loan.
But many customers never heard any more from Yes Loans after handing over the fee or were offered a loan at a much higher rate than the one they were first quoted.
Yes Loans also encouraged customers to take out expensive short-term loans and misled borrowers into believing the company was a loan provider rather than a broker.
The firm had a 28-day window in which to appeal and could carry on trading in that time. However, it eventually decided not to appeal the decision.
What the new rules mean
The power will be introduced by an amendment to the Financial Services Bill at Committee stage in the House of Lords and will come into effect early next year.
It’s likely the new power will be transferred when the handling of credit regulation passes to the new Financial Conduct Authority in April 2014.
Consumer Affairs Minister Norman Lamb said the new rule will put a stop to those companies who exploit vulnerable consumers while dragging matters through a slow legal process. It will also give a boost to legitimate businesses, with the swift suspension of unscrupulous traders.
Other rogue firms
It’s not just dodgy lenders and brokers which have come under the OFT’s spotlight in the past. Other firms that have had their licence revoked offered misleading debt solutions for indebted borrowers.
Last April the OFT revoked the licences of Bankruptcy Limited, Intl Marketing Limited, UK Bankruptcy Limited and UK Mortgage Link Limited – companies all linked to one another in one way or another, for example by sharing the same directors.
Some of the companies were also linked to potentially misleading trading names such as The IVA Council, IVA Review Board and IVA Watchdog.
The companies sent out mailings suggesting bankruptcy was a better option for some people when this wasn’t the case. People accepting the advertised services would have had to pay additional fees to switch to a different debt solution that may not have been in their best interests.
More on consumer rights
How to stop unwanted phone calls
How to complain to the Financial Ombudsman Service
Your rights if you change your mind
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