UK Credit Regulator Floats Credit License Rules

The United Kingdom’s Office of Fair Trading (OFT) this week announced several efforts to oversee the credit card industry and to better educate consumers about debt and credit.

The regulator of business competition released yesterday a draft of licensing requirements for businesses that seek to hold a consumer credit license. A PDF version is available at http://www.oft.gov.uk/shared_oft/consultations/oft920con.pdf. The guidance also offers penalties that the OFT can impose for firms that don’t meet the requirements.

The regulator is seeking input from the credit industry on the proposal until Sept. 21 and plans to release a final version of the guidance by the end of this year. The new guidance would replace rules that were last updated in 2003.

The OFT said that its research will include working with local authorities to check “that licensees have the skills and knowledge needed to carry out” consumer credit granting activities.

In one part of the guidance, the OFT said it plans to issue licenses on an indefinite basis instead of the current five-year term. The regulator said it will use its investigative “powers to request information from traders at any time while they are licensed. In certain circumstances, the OFT can also obtain a search warrant to enter premises and seize documents.” Currently, the OFT gathers information on a licensee during the application stage or during an investigation.

Ali Nikpay, OFT Senior Director, said in a statement, “The draft guidance and statement of policy explain how the OFT will use its stronger and more flexible powers to take targeted action and improve the functioning of the consumer credit market. We welcome views of stakeholders on the approach that the OFT is taking.”

In other actions this week, the OFT said it was launching a program to work with the credit card industry, consumer organizations, and other regulators to make credit card terms easier to understand. The OFT plans to spend six months researching the cost of using a credit card for purchases, cash advances, introductory offers and payment allocation.

The OFT also said it has partnered with the Trading Standards Institute to promote the Young Consumers of the Year contest with an eye toward developing consumer skills in money and finance.

The out reach to young people comes as report from the Consumer Credit Counseling Service details the debt load faced by students. The study found that 18 to 24 year olds owe on average $25,547 including personal loans, credit cards, overdrafts, store cards, catalogue debt and other borrowing.

On average, personal loans account for 56 percent and credit cards nearly 29 percent of the debt load carried by this age group. In contrast, credit card debt accounts for 51 percent of the debt of a typical 49-year-old in the U.K., according to the study, while personal loans account for 40 percent.