THE regulation of consumer credit in Britain is today condemned as "ineffective and timid in the extreme" by MPs, who say unscrupulous behaviour by predatory lenders is costing borrowers at least £450 million a year.
In a damning report, they call for the annual percentage rate (APR) rules to be scrapped and replaced by loan companies telling customers in simple terms the amount they have to repay in cash.
The UK's £176 billion consumer credit market is one of the largest in Europe. The vast majority of the lending is from credit cards and personal loans but since the financial crisis less has been borrowed through mainstream sources and more through other types of lending such as payday loans.
With the controversy over payday loans, the House of Commons Public Accounts Committee today criticises some of the companies, which offer quick but expensive money.
Margaret Hodge, its Labour chairwoman, said: "Some of these lenders use predatory techniques to target vulnerable people on low incomes, encouraging them to take out loans which, when rolled over with extra interest, rapidly become out-of-control debts.
"Such disgraceful practices by the shabby end of the credit market are costing borrowers an estimated £450m or more each year."
On the Office of Fair Trading (OFT), the industry regulator, she said it was "ineffective and timid in the extreme", saying: "It passively waits for complaints from consumers before acting. It has never given a fine to any of the 72,000 firms in this market and very rarely revokes a company's licence."
The report notes how in 2011/12, the OFT spent just £11.5m regulating a market which lent £176bn to consumers, which is low by comparison to regulators in other sectors.
"The OFT and its successor as regulator, the Financial Conduct Authority (FCA), need better intelligence and a willingness, when hearing of poor practice by lenders, to crack down swiftly with tough sanctions," she said.
Mrs Hodge stressed it was encouraging the OFT had announced plans to crack down on unscrupulous behaviour.
She added: "It would be a big step forward if consumers were given straightforward information on just how much loans are going to cost them."
The FCA takes over in 2014. The MPs say: "We expect the OFT and the FSA, on behalf of the new regulator-in-waiting, to set out their immediate plans for getting to grips with the problems we highlight."
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