Consultation on Credit Licensing 'Fitness' Conditions

The delayed consultation on the 'fitness' conditions for consumer credit licensees has today been issued by the OFT with a deadline for responses of 21st September 2007.

The consultation, which has been brought about as a result of changes to the licensing provisions contained in the Consumer Credit Act 2006, seeks to incorporate the concept of 'responsible lending' into the licensing framework for all consumer credit lenders. Although the consultation document references this fact, and provides some limited insight into the meaning of 'responsible lending' it goes onto promise that further guidance on this issue will be provided at a later stage - although no date is set for this, and it is unclear as to whether there will be a separate consultation on the matter.

The sections in the current consultation document on 'responsible lending' (paras 2.24 - 2.26 of the document) include the following:

"We consider irresponsible lending to include failing to make a proper and diligent assessment of the potential borrower's ability to repay a loan in full and to make all the periodic payments as they fall due.

The OFT would consider it irresponsible for lenders and intermediaries not to take reasonable care in making loans or advancing lines of credit in revolving credit card agreements. Reasonable care would include taking steps to find out and check the borrower's creditworthiness, and ability repay the debt and to meet the full terms of the agreement. For example, we would not consider offering new lines of credit to borrowers who are exhibiting typical signs of inability to repay existing debts (such as missed payments or always making only minimum repayments on a credit card account) to be responsible lending.

The OFT plans to produce guidance for the credit market to identify practices that we consider may be irresponsible lending. "

Debt on our Doorstep has today written to the OFT requesting clarification as to whether or not there will be a separate consultation on the concept of 'responsible lending' as a result.

We will be providing members with an opportunity to feed into the Debt on our Doorstep response to the consultation over the coming two months.

OFT Moves on Credit Card Pricing

The OFT has today announced a new programme of work with the credit card industry and consumer bodies to make the cost of credit cards easier for consumers to understand. This decision follows a super-complaint from Which? that highlighted that consumers are choosing credit cards without understanding all the issues that affect the cost of the card.

OFT research shows that the majority of card holders do not compare cards at all. This new work will explore the issues surrounding the cost of credit for credit cards including purchases, cash advances, introductory offers and payment allocation. This work is expected to take six months, and will involve close work with the credit card industry, consumer groups, other regulators, government bodies and other key stakeholders.

John Fingleton, OFT Chief Executive, said:'Credit card pricing has become increasingly complex, with many new dimensions such as interest free periods. While these new pricing dimensions give additional choice and value to consumers, they can make it harder for consumers to make informed decisions. This work will consider how pricing information might be improved so as to enable better product comparison by consumers, without stifling valuable competition and innovation that benefits consumers.'

Debt on our Doorstep has previously drawn attention to poor levels of transparency in the advertising of sub-prime credit cards, where initial 'concessionary' rates are advertised, only to be replaced by significantly higher rates in the event of a default.