By Lea Pachta

The Office of Fair Trade (OFT) has today published guidance on the irresponsible lending element of the test of fitness to hold a credit licence.

The guidance provides clarity for businesses and consumers about behaviour the OFT considers may constitute irresponsible lending practices under the Consumer Credit Act. It covers each stage of the lending process, from the pre-contract stage of advertising credit through to the handling of arrears and default on agreements.

The OFT expects creditors to have regard to the guidance so that they can avoid engaging in irresponsible lending practices. For example, it makes clear that creditors should:

– not use misleading or oppressive behaviour when advertising, selling, or seeking to enforce a credit agreement

– make a reasonable assessment of whether a borrower can afford to make repayments in a sustainable manner

– explain the key features of the credit agreement in order to empower the borrower to be able to make an informed choice

– monitor the borrower’s repayment record during the course of the agreement, offering assistance where borrowers appear to be experiencing difficulty, and

– treat borrowers fairly and with forbearance if they experience difficulties.

Ray Watson, OFT Director of Consumer Credit, said:

“Our guidance makes clear to lenders the sort of practices that will be considered as evidence of irresponsible lending as we monitor businesses and their fitness to hold a credit licence. This guidance helps all lenders avoid the risk of engaging in behaviour or practices which may lead to action by the OFT.”

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