OFT skirts high-cost credit issues

by Gill Montia

Story link: OFT skirts high-cost credit issues

The Office of Fair Trading (OFT) has reported on its review of the UK’s high-cost credit sector, which is estimated to be worth £7.5 billion.

The sector includes the pawnbroking, payday loan, home credit and rent-to-buy markets, typically used by those on low incomes who cannot access mainstream credit.

The review found that the markets work “reasonably well” in a number of respects but that problems arise from deep-seated issues, such as weaknesses in the financial capability of consumers.

The watchdog has therefore rejected the case for price controls, saying that such controls may further reduce supply.

However, it recommends a number of actions including measures to help consumers make informed decisions and increase their ability to develop a documented credit history.

The OFT also wants to implement an industry-wide code of practice and have information on high-cost credit loans made available on price comparison sites.

Director of the watchdog’s credit group, Ray Watson, says: “Our report has found that people who use high-cost credit have limited options and find it difficult to exercise what choice they have to obtain the best deal.”

He adds: “The recommendations we’re making today would deliver worthwhile improvements to these markets but more radical approaches, outside the remit of the OFT, need to be examined by the Government if the fundamental and longstanding issues of lack of consumer power and limited supply are to be tackled.”