DTI plans to curb rogue lenders won't work, say poverty groups

A consultation paper to be issued by the DTI at the end of January is understood to suggest changes to licensing for lenders, debt collectors and debt-management companies. The paper comes after the Office of Fair Trading's announcement on Monday of a 37% hike in the cost of a licence to lend money.

Under the DTI's plans, lenders who break the code will get penalty points on their licences and could eventually be banned from trading.

Anti-poverty groups said the penalty points scheme would not stop unscrupulous companies lending to low-income households at extortionate rates of interest.

Neil Cooper, national co-ordinator for Church Action on Poverty, said the DTI should instead set a maximum interest rate to make the regulations enforceable. He said: "If the only sanction is to take away the licence, then it won't work. We need to say that they can't charge this interest rate, full stop. We need an instant result, not the accumulation of penalty points."

A second paper, to be issued in the next few weeks, is expected to propose independent tribunals to hear consumer complaints.

Cooper suggested that tribunal judgments should be applied to all lenders rather than just the company named in the case.

Malcolm Hurlstone, chairman of the Consumer Credit Counselling Service, a charity, warned that small lenders would go out of business and be replaced by rogue traders if licences for the new scheme were too expensive. He said: "We have concerns that the cost of licences should not be so high as to drive small licensed lenders out of business and create the opportunity for unlicensed lenders."

A DTI civil servant said the paper had not been finalised and would go to ministers next week before being released at the end of the month. He added: "Penalty points was an idea mooted at an early stage but it's not one of the frontrunners."