OFT to be given power to immediately suspend licences of rogue lenders

The regulator is expected to have use of the power from some time next year after the Department for Business, Innovation and Skills (BIS) said that the OFT would consult on how it would use the power this autumn and then publish guidance on the issue in early 2013.

The OFT has existing powers to revoke businesses' consumer credit licenses, but the decisions are open to appeal and firms can continue trading during those periods, which BIS said can last for up to two years. The new powers would help stop companies from exploiting "vulnerable consumers" during that "slow legal process", Consumer Affairs Minister, Norman Lamb, said.

"The new measure is part of a concerted approach to strengthen protection around consumer credit, including issues such as payday lending and debt management," Lamb said. "We want to encourage, and give the tools to, consumers to take sensible decisions."

The Consumer Credit Act (CCA) requires most businesses that lend money to consumers or offer goods or services on credit to be licensed by the OFT. Under the Act the OFT is required to ensure that those licenses are only given to firms that are fit to hold them. The Act requires that the firms do not engage in unfair or improper business practices. 

The OFT has previously raised concerns about misleading advertising and the quality of advice provided to consumers in the debt management sector. It conducted a review of the industry in 2010 and since then has issued 129 warnings to debt management businesses over their behaviour. In March it revealed that 87 businesses have since exited the market, either voluntarily or as a result of enforcement action, whilst a further 67 warning letters had been issued.

The new Financial Conduct Authority (FCA) is expected to take over the OFT's oversight of credit regulation from April 2014. The Government said the new powers, which will be introduced by an amendment to the Financial Services Bill, would ensure the OFT "remains an effective regulator across the interim period."

Consumer watchdog Which? welcomed the increased powers being given to the OFT.

"Our research has found that people taking out payday loans are often caught in a downward spiral of debt so it is important that the Office of Fair Trading will have the power to instantly suspend the credit licences of unscrupulous lenders caught breaking the existing rules," Which? chief executive Richard Lloyd said in a statement.

"The Government must now introduce wider, tougher rules for payday lenders to better protect consumers, make sure the regulator has the resources it needs, and ensure there is no gap in supervision as these powers transfer to the Financial Conduct Authority," he added.