OFT moves to tackle credit scams
July 17th, 2011
The Office of Fair Trading (OFT) this week announced plans to tackle dishonest credit brokers that demand upfront fees for loans they have no intention of arranging. Firms found engaging in the scam practice will be closed down for the protection of consumers.
The measure is part of a general crackdown by the regulator following a complaint from Citizens’ Advice that said some unscrupulous firms were cold-calling thousands of potential borrowers and offering loans in return for hefty fees.
Evidence suggests some businesses are deliberately taking people’s money upfront with no realistic expectation of finding them the type of loan they need. To combat this, the OFT is making it mandatory for fees to be refunded if a loan is not agreed.
The OFT is going to ask the government to consider changing the law to ban outright the practice of credit brokers demanding upfront fees in exchange for arranging loans.
Citizens’ Advice had complained, in a so-called “super complaint”, that many people had received a text message or telephone call from these firms offering to find them an unsecured loan. Those who accepted were then charged the fees for little or no service in return.
The OFT estimates that 270,000 people had paid upfront fees to credit brokers in the past year, with complaints about them doubling between 2008 and 2010, an upfront fee of £70 was not uncommon, but the organisation had come across charges of up to £300.
The firms in question typically specialised in arranging unsecured loans for people who found it hard to borrow money because of their low incomes or past problems repaying debts.
Some victims, Citizens’ Advice said, had been persuaded to hand over their bank details and later found that money had been taken from their account without their permission. Victims struggled to get somebody to deal with the issue, and were charged a premium rate when calling to complain.
In parallel, the OFT will bring in new rules later this month for debt management firms to stop them making misleading claims in adverts, charging expensive fees upfront, giving poor advice or posing as charities.
As well as threatening to close down rogue credit brokers, the OFT is consulting on changes to its own rules to make it clear that borrowers already have a right in law for their fees to be refunded if the credit broker fails to introduce them to a potential lender and, if an introduction is made but a loan is not granted within six months, the fee must still be repaid.
The consumer minister Edward Davey welcomed the OFT’s proposed changes and has promised legislative action if required to back up the consumer protection initiative. Analysts have welcomed the moves as important steps to protect vulnerable consumers but pointed out that it will require continued vigilance as new loop holes will always be found by criminals and unscrupulous brokers.
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