The Office of Fair Trading is being given the power to instantly stop rogue money lenders, debt collectors and debt advice firms from operating.
The government has decided to amend the Financial Services Bill, which is currently in the Lords, so that the OFT now has the power to suspend firms’ consumer credit licences with immediate effect.
At the moment appeals can hold up such decisions by up to two years.
Consumers’ association Which? said the move was a “good step forwards”.
Richard Lloyd, executive director of Which? said:
“Our research has found that people taking out payday loans are often caught in a downward spiral of debt.”
“So it is important that the Office of Fair Trading will have the power to instantly suspend the credit licences of unscrupulous lenders caught breaking the existing rules.”
The OFT’s powers will stay in place until the regulation of consumer credit businesses is transferred to the new Financial Conduct Authority in April 2014.
The Consumer Affairs Minister, Norman Lamb, said:
“This will put a stop to those companies who exploit vulnerable consumers whilst dragging matters through a slow legal process.”
“It will also give a boost to legitimate businesses, with the swift suspension of unscrupulous traders.
“The new measure is part of a concerted approach to strengthen protection around consumer credit, including issues such as payday lending and debt management.”
In the past decade there have been numerous attempts by the OFT to regulate the rapidly growing “industries” of short-term money lending, loan-broking, debt collection and debt advice.
But despite clear rules of conduct being in place for a long time, the industries are still plagued by rogues who ignore the rules for as long as possible.
Lee Manning, of the insolvency professionals trade body R3, said the new power for the OFT should be applauded, saying:
“This will hit rogue companies who provide goods or services on credit, lend money, collect debts or help people with debts.”
“This includes payday loan and debt management companies who break the rules – they have arrived in force on the internet and on our High Streets, while regulation has been slow to keep up.”
Sarah Brooks of Consumer Focus said:
“Companies under threat of losing their consumer credit licence have no incentive to improve their behaviour and some use the appeal process to gain more time to cash in at their customers’ expense.”
“It isn’t often that the regulator resorts to taking away licences, but it is a vital tool to have if it feels firms are not playing fair with their customers.”