Office of Fair Trading begins consultation on the fairness and competition in the consumer credit market
The Office of Fair Trading (OFT) has started a wide-ranging review of the loan and credit card market to ensure that customers are treated fairly in the recession.
The watchdog has asked for comments on how to promote fairness and responsibility among lenders, and is also consulting on how competition can be maintained after the recent nationalisation and mergers of banks.
The review is expected to investigate the transparency of banks’ risk-based pricing, the role of credit reference agencies and how lenders treat borrowers in financial difficulty.
It comes after widespread concerns since the onset of the credit crunch that consumers have difficulty obtaining credit; that those deemed to be high risk are charged excessively high interest rates and that borrowers in arrears are treated harshly.
John Fingleton, chief executive of the OFT, said: “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.”
The consultation was initially announced in the Pre-Budget Report in November, when the Chancellor told the OFT to conduct a Financial Services Plan to tackle anti-competitive behaviour.
Mr Fingleton has said that he wants to avoid a two-tier banking system in which new lenders struggle because nationalised banking groups have a monopoly over consumers. Such a system may stifle competition just when the market needs it most, he said.
The Finance and Leasing Association (FLA), the industry body for consumer finance, says that there are already numerous other reviews by the Government and the OFT into lending.
Stephen Sklaroff, 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.”
Consumer groups welcomed the OFT’s move, saying that households need more protection in the economic downturn.
Vera Cottrell, of Which?, the consumer group, said: “We are very pleased that the OFT is reviewing how the credit market works. There are a lot of concerns for consumers at the moment, particularly the role of credit reference agencies and how they use and share personal data.
“There is also a real concern that, as a result of the HBOS and Lloyds and other bank mergers, consumers will be faced with less choice and more expensive products.”
The consultation will run until June 12, with a final Financial Services Plan published in July 2009.
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