OFT threatens action against lenders pushing debt cover

OFT threatens action against lenders pushing debt cover

The Office of Fair Trading is to crack down on the debt consolidation industry after an eight-month investigation uncovered evidence of potential unfair practices.

In a scathing indictment, the OFT concluded that some lenders, including major high street banks, may have been inappropriately pushing customers to take out consolidation loans to pay off debts.

It also said consumers needed to be given more and clearer information to help them assess the suitability of products.

The findings have resurrected concerns about soaring levels of personal debt in the UK and, in particular, the role that debt consolidation plays in exacerbating the problem.

The OFT estimates that £32bn of unsecured lending and £8.8bn of secured lending were used for debt consolidation during 2002.

The study also found evidence that lenders may be "inappropriately" selling expensive payment protection insurance, or PPI, to borrowers who would be unlikely to ever claim on it.

This follows a Guardian investigation last week that exposed the huge profit margins made by Barclays Bank from selling PPI.

A spokeswoman for the OFT said the evidence relating to PPI will be "looked into further" to see if any lenders had a case to answer.

Debt consolidation is a blanket term for taking out extra credit or loans to pay off two or more existing debts.

Consolidation loans are taken out in an effort to reduce monthly repayments. The.....continued below

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loans tend to spread the payments over a longer period of time, however, meaning overall debt increases, and so are not always the best option for borrowers.

The OFT's report also highlighted possible breaches of credit advertising rules by loan firms, which it says it will investigate further.

Jonathan May, the director of the OFT division that carried out the study, said: "We intend to look at the scope for further guidance, and where lenders or brokers are in breach of the regulations we will not hesitate to take enforcement action."

If the regulator's further investigations do uncover evidence of unfair practices, it says it can subsequently take companies to court.

The Consumer Credit Counselling Service, one of a number of free services that offer debt management advice, welcomed the study as "a good first step".

Guardian Unlimited © Guardian Newspapers Limited 2003