subject: Loan Providers Warned Against Irresponsible Lending [print this page] Loan Providers Warned Against Irresponsible Lending
Providers have been warned that they could risk losing their credit license if they mislead customers into borrowing from them. The credit lending agencies are now obliged to assess whether borrowers can afford loans so that they don't fall into serious debt later.
The judgment has come from the Office for Fair Trading (OFT), which has published guidelines on irresponsible lending. These guidelines cover all areas of extending loans from advertising to handling of arrears.
As per the new guidelines, the regulator expects creditors to:
Ensure that they do not use misleading or oppressive behaviour when advertising, selling, or enforcing a credit agreement
Make a reasonable assessment of the borrower's financial situation to ensure whether he or she can afford to make repayments in a sustainable manner
Explain the key features of a credit agreement so that the borrowers can make an informed decision
Monitor borrowers' repayments records during the agreement and offer all possible assistance if troubles arise
Treat borrowers fairly and with forbearance if they experience difficulties.
Ray Watson, director of consumer credit at the OFT, said that the aim of the guidelines were to ensure that the borrower's get a fair deal. He said, "This guidance helps all lenders avoid the risk of engaging in behavior or practices which may lead to action by the OFT."
The Citizens Advice Bureau's debt policy officer, Peter Tutton, said the guidance sent a clear signal that lenders must get their houses in order. The order is also being seen as a big step towards ensuring consumers are treated fairly and are not led into taking loans that will lead them deep into debt.
Financial experts feel that this is a step in the right direction because many a time the borrowers are unaware of the finer print and end up repaying more than they had bargained for. Needless to say, they could fall into serious debt that could take a toll not only on their finances but also on their peace of mind as well.
The step by OFT is also welcomed considering that the number of people who declared bankruptcy or entered an IVA reached a record high in Britain this year. Talk to most debt management companies offering free debt advice and you they will say that a majority of borrowers who approach them were not fully aware of terms and conditions because they had not read between the lines or did not have the financial knowledge to understand what the finer print meant. The OFT guidelines will put more pressure on the creditors to ensure that borrowers understand the agreement and the loan extended to them takes into consideration their current financial circumstances and income.
