Thursday, 30 July 2009

OFT publishes draft guidance to prevent irresponsible lending

Debt On Our Doorstep today welcomed the draft guidance on responsible lending published by the OFT.

Presenting his initial reactions to the document, Damon Gibbons, Chairman of Debt On Our Doorstep, commented:

“This draft guidance is a huge step forwards for consumers. If implemented as currently drafted it would require lenders to make a proper assessment of a borrower’s ability to repay prior to granting a loan. We know that at the moment many lenders fail to make effective checks before lending, preferring to trap people in a cycle of increased borrowing. In the long term this has devastating consequences for low income households and communities.

“The OFT is to be applauded by putting forward such robust proposals to deal with this problem and we look forward to working with them over the coming 12 week consultation period.”

Wednesday, 29 July 2009

Barnardo's slams Provident rates of 545%

Barnardo's 'Breadline Britain' report, published yesterday, rightly slams Provident's 545% APR loans to some of Britain's poorest families as 'extortionate'. The report comes on the same day that Provident announced a rise in pre-tax profits in the first six months of the year and following admissions from Provident Chief Executive Peter Crook that one of the effects of the credit crisis has been to drive people previously catered for by cheaper lenders to the high cost end of the market.

But what is to be done about the problem? The OFT has today published it's Financial Strategy Action Plan which contains, amongst other things, an acknowledgement that competition in our credit markets has been curtailed by the crisis and is failing to deliver a fair deal for consumers.

That comes as no surprise. In 2006/07 the Competition Commission investigation into door to door lenders found that nearly £100 million in excess profits were being made by firms in this market. But with competition weakening, the Commission's own remedies, which largely relied on people being able to build up a credit record and move onto cheaper, more mainstream types of borrowing, have failed to address the problem. The movement is all the other way.

We now need urgent and direct action to address this failure. As part of its plan, the OFT is reviewing the high cost credit market and rightly considering the case for a cap on credit charges. In our view, this cannot come too soon and we will be submitting evidence on this issue to the OFT in late August. But the real need now is for supporting agencies to lobby their M.P's to support the introduction of legislation to cap credit costs before the next general election. If you are able to help with the campaign, please get in touch by e-mailing