OFT issues guidance on irresponsible lending

31 March 2010 | By Natalie Thomas

The guidance provides clarity for businesses and consumers about behaviour the OFT considers may constitute irresponsible lending practices under the Consumer Credit Act.

It covers each stage of the lending process, from the pre-contract stage of advertising credit through to the handling of arrears and default on agreements.

The OFT expects creditors to have regard to the guidance so that they can avoid engaging in irresponsible lending practices.

For example, it makes clear that creditors should not use misleading or oppressive behaviour when advertising, selling, or seeking to enforce a credit agreement.

It also requests that a reasonable assessment of whether a borrower can afford to make repayments in a sustainable manner is made.

Lenders must ensure the key features of the credit agreement in order to empower the borrower to be able to make an informed choice and monitor the borrower’s repayment record during the course of the agreement, offering assistance where borrowers appear to be experiencing difficulty, and treat borrowers fairly and with forbearance if they experience difficulties.

Ray Watson, director of consumer credit at the OFT, says: “Our guidance makes clear to lenders the sort of practices that will be considered as evidence of irresponsible lending as we monitor businesses and their fitness to hold a credit licence. This guidance helps all lenders avoid the risk of engaging in behaviour or practices which may lead to action by the OFT.”