OFT reviews unsecured consumer credit market

[Amethyst]

Tuesday 7 April 2009 09:30
Office of Fair Trading (National)

OFT consults on financial services strategy review of unsecured consumer credit market announced

The OFT has launched a consultation on its proposed financial services strategy which sets out its approach to the sector in response to the current economic crisis. The OFT is asking interested parties to comment on its proposal to focus on two inter-related themes:
* The prioritisation, in the short term, of promoting fairness and responsibility between the credit industry and consumers, and
* advocating choice and competition to ensure that public decisions made to deal with the current crisis do not harm competition in the long term to the detriment of consumers.
The strategy also announces that the OFT is to conduct a review of the unsecured credit market. The financial crisis has led to significant changes in this market and the review will focus on the fair treatment of consumers and on ensuring that this key driver of economic growth works effectively.
John Fingleton, Chief Executive, said:
'Much of our work is already aligned with the needs of consumers, business and the economy in the current crisis but this strategy will sharpen our financial services focus over the coming year.
'With our focus on credit, we are addressing the area in which there is a real risk of short-term consumer harm while also ensuring that the sector that emerges from the current crisis is competitive and behaves fairly and responsibly towards consumers. 'Looking further forward, the financial services sector that emerges should be characterised both by effective prudential regulation and open markets. Choice and competition involving existing players and new entrants are vital to delivering growth, prosperity and a good deal for consumers. There is a risk that this could be overlooked in the re-design of financial regulations, with high costs for consumers and the economy.'
The consultation will run until 12 June 2009. A final Financial Services Plan, taking account of consultation responses, will be published in July 2009.
NOTES
1. The Financial Services Strategy consultation document can be found online at: http://www.oft.gov.uk/advice_and_res...cial-services/.
2. The strategy was first announced in the Pre-Budget Report in November 2008 (available on HM Treasury's website at http://hm-treasury.gov.uk/d/pbr08_chapter3_190.pdf). This stated that the OFT would set out a specific Financial Services Plan, detailing how the OFT would build on its strong track record of tackling anti-competitive behaviour and consumer detriment.
3. Details of the proposed unsecured credit review can be found at http://www.oft.gov.uk/oft_at_work/ma...credit-sector/. The OFT is seeking the views of stakeholders on its scope by 8 May 2009 with the intention of formally launching the review in the summer.
http://www.oft.gov.uk
PUBLIC enquiries: 0845 7224499 enquiries@oft.gov.uk
OFT reports and consumer information leaflets are available free from:
OFT, PO Box 366, Hayes UB3 1XB 0800 389 3158 oft@ecgroup.co.uk


Client ref 40/09

[Amethyst]

Re: OFT reviews unsecured consumer credit marke

oooo oooo ooooo any one fancy a consultation

CRA's / Managed Loans / Payday Loans / Doorstep Loans / Arrangement fees





We propose that the focus of the review will be on unsecured consumer credit and that the review should consider:

• consumer behaviour and decision-making
• the degree of transparency in pricing
• how risk-based pricing operates
• whether the right incentives are in place for suppliers to provide the right products for consumers.

Specifically, we would be interested in comments, particularly those supported directly by evidence, on the following questions:

1. Our proposed focus is on unsecured consumer credit. In your view, are there other higher priority areas within the credit sector on which the OFT could focus its review? Also, are there particular forms of credit we should focus on?




2. We have identified four issues. Are these the key ones, or, in your view, are there other issues that would better define the scope of this review?




3. Credit reference agencies play a role in informing responsible lending decisions. In your view, are there any issues in this area that we should consider?
It should be noted that secured lending, such as first charge mortgages, are outside the scope of this review unless they are seen as substitutes for unsecured lending. Also, we will not be focussing on debt collection since there is considerable work already being done in this area.




Content on this page ...

• 1. What has prompted this review?
• 2. What is the size of the sector in the UK?
• 3. Why is the OFT doing it now?
• 4. What will be the scope of the review?
• 5. How does this review fit in with the work of the FSA?
• 6. Are mortgages covered by this review?
• 7. Is this review going to look at debt collection?
• 8. When will the OFT formally going to launch the review?
• 9. From whom does the OFT want to invite comments prior to formal launch?
• 10. How long does the OFT expect the review to take?
• 11. What might be the possible outcomes of the review?
• 12. What statutory powers does the OFT have in this area?

4. What will be the scope of the review? We are proposing that the review should focus on the unsecured credit sector but we may also look at secured loans that act as substitutes for unsecured loans such as second charge mortgage loans. See the proposed scope of the review.




so Nemo etc?

[EXC]

Re: OFT reviews unsecured consumer credit marke

This is good stuff from the OFT. In all the acres of news comment on regulatory reform needed since the credit crunch there has been precious little on the consumer angle.

''
'Looking further forward, the financial services sector that emerges should be characterised both by effective prudential regulation and open markets. Choice and competition involving existing players and new entrants are vital to delivering growth, prosperity and a good deal for consumers. There is a risk that this could be overlooked in the re-design of financial regulations, with high costs for consumers and the economy.''

[Amethyst]

Re: OFT reviews unsecured consumer credit marke

wonder how this works along side

OFT consults on second charge lending guidance

13/09 13 February 2009
The OFT today launched a consultation on draft guidance for businesses engaged in second charge lending.
Download Second charge lending - OFT guidance for brokers and lenders - an OFT consultation (pdf 144 kb).
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.

Sounds like a bit of an overlap.

4. What will be the scope of the review? We are proposing that the review should focus on the unsecured credit sector but we may also look at secured loans that act as substitutes for unsecured loans such as second charge mortgage loans. See the proposed scope of the review.

[EXC]

Re: OFT reviews unsecured consumer credit marke

oooo oooo ooooo any one fancy a consultation ?

It would be a big project as it covers so many issues and market sectors. If we were to do it ourselves maybe we should focus on one area ie CRAs.

The other option would be to commision Tom (which wouldn't be cheap) but we won't know how effective that approach is until the OFT publish the PCA consultation and we only have until the 8 May.

Here is the Guardian's report on it:

http://www.guardian.co.uk/money/2009...ecured-lending

OFT to investigate unsecured consumer lending

Review comes as consumer anger rises over volatile fees, charges and credit limits on cards and personal loans

The Office of Fair Trading (OFT) is to launch an investigation into unsecured consumer credit, especially overdrafts, personal loans, credit cards and hire purchase.

The review into the £200bn-a-year sector comes in the wake of increasing customer anger about fees, charges and volatile credit limits. There is also incomprehension that interest rates are rising when the Bank of England base rate is at a record low.The OFT will also investigate the power and role of consumer credit reference agencies such as Experian, Callcredit and Equifax.
John Fingleton, chief executive of the OFT, said: "With our focus on credit we are addressing the area in which there is a real risk of short-term consumer harm, while also ensuring that the sector that emerges from the current crisis is competitive and behaves fairly and responsibly towards consumers.

"The financial crisis has led to significant changes in this market and the review will focus on the fair treatment of consumers."
The investigation will look at:

• Consumer behaviour and decision making – the OFT expects the review to clarify how borrowers view the market, how the increase in high-cost, short-term lending such as payday loans and logbook loans (secured on cars) has impacted the market, and how design and advertising influence customer choice.

• The degree of transparency in pricing – many consumers are confused by small print clauses which can sharply increase the cost of borrowing. There is also concern as to whether APR is a meaningful measure of credit costs: Royal Bank of Scotland recently told credit card customers that its upmarket Black Card had a 51.8% APR, but the bank said the card's charging structure "distorts the advertised APR", effectively making it meaningless.

• How risk-based pricing works – this is where interest rates are advertised as "typical" so borrowers don't know what rate they will get until they make a formal application, and could end up paying more because banks perceive them as a bad risk.

• Incentives for lenders to provide the right products for customers – this will look at whether there is enough competition to provide a variety of loans to meet consumer needs, rather than shoehorning them into unsuitable deals.
The OFT wants "interested parties" including consumer bodies, trading standards, banks, non-bank lenders and consumer bodies to comment on how these issues are affecting consumers in the post credit crunch world.
It is also inviting comment for the first time on the role of the credit reference agencies. They have been criticised for the power they wield combined with their lack of responsibility when they make mistakes. The OFT expects to publish its findings by December.

The British Bankers' Association said it was "not sure of the purpose of the review", while the Finance and Leasing Association (FLA), which represents a wide variety of loan companies including doorstep lenders and hire purchase firms, complained that the OFT review "risks confusion for consumers".

Stephen Sklaroff, director general of the FLA, said: "The OFT is right to recognise the importance of choice and competition for consumer credit customers. The industry is already taking action to deliver the best possible service to its customers.
"But the large number of current overlapping reviews risks diverting attention from helping consumers and may cause confusion. The numerous threads need to be drawn together to ensure a coherent outcome for consumers."

[Amethyst]

Re: OFT reviews unsecured consumer credit market

This isnt the full consultation yet - its an interim one to see what they they should consult on (basically) I think we can concentrate on the consumer aspects with case studies, and have a bash at it ourselves (if everyone puts thoughts forward) and then when the full consultation comes out in July we can see then if we want to fully respond.

[EXC]

Re: OFT reviews unsecured consumer credit market

Okie doke

[Amethyst]

Re: OFT reviews unsecured consumer credit market

For info: Payday loans increased by 55 per cent in Britain between September 2007 and May 2008. Every month another 23,000 new customers enter the market, who together borrow £4 million.

[Amethyst]

Re: OFT reviews unsecured consumer credit market

Another interesting report - http://www.jrf.org.uk/sites/files/jr...iness-full.pdf
ref Not for Profit home credit