OFT targets personal loan scammers
The Office of Fair Trading is to crack down on scam artists in the personal loans sector, it has been announced.
The ruling comes after Citizen's Advice launched a super complaint with the consumer watchdog claiming unscrupulous credit brokers are cold-calling consumers and offering to arrange loans in return for a large fee.
In many cases the loans never materialise and the would-be borrowers do not get the fees back. Now the OFT is making it mandatory for fees to be refunded if a loan is not agreed.
It also said it is asking the government to consider whether new legislation is needed to address problems in the sub-prime unsecured credit brokerage market, including a possible ban on upfront fees.
John Fingleton, chief executive, of the OFT, says:
"The super-complaint from Citizens Advice has been timely given our ongoing work to protect vulnerable consumers from poor practice in the credit sector. Our evidence suggests some businesses are deliberately taking people's money upfront with no realistic expectation of finding them the type of loan they need.
"We will continue to take robust enforcement action against businesses using unfair or improper business practices and we are providing new guidance making very clear the kind of behaviour we expect from the industry."
Citizens Advice welcomed the news.
Chief executive Gillian Guy says: "We are very pleased that the OFT agrees there is a serious problem and that action is needed to stop cold-call credit brokers tricking vulnerable people out of large sums of money for non-existent loans and other financial services."
A complaint made in the UK by a government-approved watchdog or consumer organisation on behalf of consumers which is then fast-tracked by the Office of Fair Trading (OFT). For a super complaint to be valid, it has to be about a “market feature, or combination of features, such as the structure of a market or the conduct of those operating within it, that is or appears to be significantly harming the interests of consumers”. In March 2011, the OFT received a super complaint from consumer watchdog Which? asking the regulator to investigate excessive surcharges imposed by issuers of credit and debit cards.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.