Out-Law News | 24 Oct 2012 | 1:50 pm | 2 min. read
It is now consulting on the detail of the proposal, which is expected to come into effect from next spring. Final guidance will be published in February, the OFT said.
The Government announced the new power in July. The OFT has existing powers to revoke businesses' consumer credit licences, but the decisions are open to appeal and firms can continue trading until a final decision is taken. This process can last for as long as two years.
"This is an important new power that will allow us to deal quickly with businesses posing an immediate and serious risk to consumers," said OFT director of credit David Fisher. "Following consultation with interested parties, we expect to use the power in serious cases where it is essential we prevent a business operating to protect people."
The new power will be created via an amendment to the draft Financial Services Bill, which is currently before Parliament. It will allow the OFT to suspend a licence issued under the Consumer Credit Act (CCA) with immediate effect, or from a date it specifies, in certain circumstances.
The CCA requires most businesses that lend money to consumers or offer goods or services on credit to be licensed by the OFT. Under the CCA the OFT is required to ensure that those licenses are only given to firms that are fit to hold them. The rules require that the firms do not engage in unfair or improper business practices.
The OFT would only be able to use the new power where there is an urgent need to protect consumers from harm. Factors that the OFT will take into account when deciding whether to use it include evidence that the business has engaged in violence, fraud or dishonesty, or is targeting vulnerable consumers with harmful practices. It could also take into account lenders failing to address concerns previously raised by the OFT or partner organisations, such as Local Authority Trading Standards Services.
However, the draft guidance states that the OFT's decision will not be a "tick box" exercise, and that the regulator will take the most appropriate action depending on the circumstances of the case.
Businesses will be treated in law as if they were unlicensed in cases where a licence is suspended. This will make it a criminal offence for the business to continue to lend, or engage in other licensable activities.
The power is intended as an interim measure until consumer credit regulation is transferred to the new Financial Conduct Authority (FCA), which is expected to happen from April 2014. A consultation on whether and when this power will transfer to the FCA, which will also take on the conduct and compliance functions of currently financial services regulator the Financial Services Authority (FSA), is due to be published shortly.
The FCA will be given a "clear mandate" to make rules to ban products that pose unacceptable risks to consumers, and will be able to do so for up to 12 months without consultation in cases where it needs to intervene quickly. It will also be able to ban misleading advertising, according to an 'approach document' published by the FSA last week.