Crackdown on rogue lenders is not tough enough, says consumer group

The proposals, unveiled last week, would make it harder for unscrupulous credit businesses to get trading licences and would mean firms that break trading rules were fined. At the moment, the Office of Fair Trading can only revoke licences but cannot issue fines.

The new measures, proposed by the Department of Trade and Industry's over-indebtedness taskforce, are part of a review of the Consumer Credit Act.

They include:

• more stringent checks on credit companies and their directors when they apply for a licence
  
• fines for companies that break licensing rules
  
• clearer information for consumers on the terms of their credit agreement
  
• a requirement for companies to carry out checks before raising overdraft and credit card limits
  
• guidance on the sympathetic treatment of people with serious debt problems.

However, campaign group Church Action on Poverty has criticsed the review for failing to address important areas such as extortionate interest rates and alternative financial products for low income borrowers.

CAP's national coordinator, Niall Cooper, said: "It seems better than what we have at the moment but it depends not just on how powerful the OFT will be, but on whether it has the resources to do the job properly. We are talking about millions of credit agreements which are virtually unpoliced.

"[The plan] doesn't even mention extortionate lending and interest rates. That suggests to me that they don't understand how important the issue is."

However, he conceded that he expected these issues to be dealt with in a consultation paper to be published in September.

The plan doesn’t even mention the issue of extortionate lending and interest rates – they don’t seem to understand how important it is

Niall Cooper, national coordinator, Church Action on Poverty

Fellow consumer rights group Citizens Advice said the proposals were "long overdue" but added that they were welcome.

The plan came amid growing concern from consumer groups that unscrupulous lenders were tying financially excluded borrowers into contracts with extortionate rates of interest.

Consumer minister Melanie Johnson said: "This is the biggest shake-up of credit companies for almost 30 years. There is no place for rogue traders, preying on vulnerable consumers, in today's credit market.

"The current system of credit licensing was designed to deal with a sector that was much smaller and less sophisticated than the one we have today.

"I want to make the licensing rules appropriate for today's competitive marketplace, and to provide the Office of Fair Trading with the right tools to protect consumers."