The Office of Fair Trading has launched a consultation on draft guidance setting out practices the OFT considers constitute irresponsible lending.
The proposed guidance clarifies minimum standards required from businesses engaged in lending which, if breached, could lead to the OFT taking enforcement action against the lenders.
The guidance covers each stage of the lending process and a range of potential issues in a credit transaction including advertising, account management and handling of arrears.
The draft guidance identifies types of policies and procedures that the OFT would expect lenders to put into practice.
These include ensuring all key information provided to prospective borrowers is clear and easily understandable and properly explained to them and assessing a prospective borrower’s ability, in the context of their overall financial circumstances, to afford to meet repayments in a sustainable manner.
The guidance also includes dealing with borrowers in default or arrears in a fair and proportionate manner, seeking to repossess a borrower’s property only as a last resort.
The document also sets out some specific practices that the OFT considers to constitute irresponsible lending. These include encouraging borrowers to increase existing debt when borrowers may face difficulties clearing their debts and targeting specific groups of vulnerable borrowers with credit products that are likely to be inappropriate for them.
The OFT also considers the use of high-pressure selling techniques or inappropriate inducements as irresponsible.
The final guidance will complement existing OFT guidance for the consumer credit sector.
Ray Watson, OFT director of consumer credit, said: “It is important that consumers are protected from lenders acting irresponsibly