OFT defends its regulation of consumer credit market following criticism by MPs

In a report published late last week, the House of Commons' Public Accounts Committee (PAC) accused the Office of Fair Trading (OFT) of being ineffective in its regulation of the market. (73-page / 1.22MB PDF) The regulator has been "timid rather than tough in its enforcement" and has "failed to proactively identify risks of malpractice", PAC said.

However, a spokesperson for the OFT said the regulator has been "far from ... timid" and that it has "taken strong, targeted action to tackle the areas of greatest risk to consumers."

"In the last financial year alone the OFT has revoked the licences of some of the UK's largest credit brokers and debt management firms, and taken formal action in more than 85 other cases," the OFT's spokesperson said in a statement. "Around 100 debt management companies have also left or been refused entry to the market since 2011, and the leading 50 payday lenders have recently been given 12 weeks to change their business practices or risk losing their licences. Both cases follow proactive reviews of entire sectors."

Amongst the criticisms levelled at the OFT by PAC was that the regulator had not been able to "effectively prevent" individuals starting new consumer credit businesses after their old companies had their licenses revoked. It said the OFT had set its licence fees at a "ridiculously low" level and that this had hampered its ability to regulate the market effectively.

The OFT also had insufficient information about the workings of the consumer credit market and said that the Financial Conduct Authority "needs better intelligence so it can prevent consumer harm and ... apply tougher sanctions more swiftly when it is aware of poor practice" when it assumes responsibility for the regulation of the market next year, PAC said.

The OFT said, though, that PAC had failed to take account of the nature of its role in the regulation of consumer credit firms. The spokesperson for the regulator said that, in a previous report, the National Audit Office had "commended" it for "delivering a good return, saving consumers an estimated £8.60 for each £1 it spent on enforcing the law".

"We are disappointed that the Committee has not acknowledged the constraints of the legislation under which the OFT currently operates which, as the NAO found, was not designed to provide a supervisory approach to addressing potential consumer harm," the OFT's spokesperson said. "As the NAO recognised, these constraints include a lack of regulatory powers and the ability to impose fines only in very limited circumstances."

"We strongly support the Government's decision to give the Financial Conduct Authority new supervisory powers from 2014 to enable them take a more interventionist approach with increased resources for the new regime," they said.