The Consumer Credit Act 2006 explicitly includes 'irresponsible lending' as an unfair practice relevant to the OFT when considering a licensee's fitness to hold a consumer credit licence. The OFT has now taken the initial step towards providing guidance on its position as regards the test for irresponsible lending.
This initial phase is intended to establish the overall scope of the project. While the project will major on behaviour and practices surrounding a creditor's decision to lend, it appears that the OFT's intention is to widen the scope considerably to include product design, marketing, suitability and arrears management and even the sale of associated products. The OFT's view is that the wider the scope of the project, the more useful it will be for businesses and consumers alike. While one can see the attractiveness of this approach from the OFT's perspective, it may be considered by the industry as a further example of the OFT seeking to legislate by the back door, as it was criticised for doing with the publication of the Non-Status Lending Guidelines. It may be argued that "irresponsible lending" should be confined to the narrower issue of the lending decision itself and should not used by the OFT as an opportunity to voice its opinions on a wide range of subjects.
Given the potential impact of such a wide-ranging review, it is vital that all those involved in consumer credit business, including credit brokers and intermediaries, fully appreciate what this initial step in the consultation process is designed to achieve and become engaged in the process.
A copy of the consultation is available here. Responses to the consultation need to be received by the OFT no later 24 October 2008. Once the scope of the project has been established, there will be formal consultation on proposed guidance. It is envisaged that the project, including the publication of initial guidance for consultation, will be completed within a 12-month period.
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This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 04/08/2008.
