OFT Annual Plan for 2013/14: Financial Services Implications

On March 21, the OFT published its annual plan setting out its priorities for 2013/14.  The OFT stated that it does not intend to make any fundamental changes to the themes for 2013/14 but that the following financial services-related issues were of importance:

  • Consumer credit enforcement.  The OFT intends to scrutinize applications from businesses wishing to operate in high risk areas.  It also intends to implement its consumer credit enforcement tools where there is an urgent need to protect the interests of consumers.
  • Payday lending sector.  The OFT has noted the widespread failure of the payday lending sector to comply with the law and OFT guidance and intends to implement a number of actions in response.
  • Supporting transition to the Financial Conduct Authority (FCA).  The OFT has also announced that the transfer of the OFT’s consumer credit responsibility to the FCA is expected to take effect from April 2014, and that it will be working with the FCA to ensure an effective transition.  The OFT will also assist with establishing the FCA’s interim permissions regime and ensure that any OFT-initiated enforcement action can be carried on and concluded by the FCA. The OFT is also developing a memorandum of understanding which will clearly set out the roles of the OFT and FCA.

OFT Launches Review into Payday Lending

On February 24, the OFT launched a review  of the payday lending sector, to be carried out alongside enforcement actions being taken within the payday lending sector, as a result of concerns that certain payday lenders were taking advantage of people in financial difficulty.

The OFT will carry out on-site investigations of 50 major payday lenders and review whether they are complying with both the Consumer Credit Act and its guidance on irresponsible lending.  The review will focus on: (i) loans which are given to borrowers without sufficient evaluation of repayment likelihood; (ii) inappropriate targeting of groups; and (iii) rolling loans which result in escalating charges.

The OFT intends that the review will increase industry standards, improve customer protection and force non compliant payday lenders to give up their licenses.

Joint Finalized Guidance from the FSA and OFT on Payment Protection Products

On January 24, the FSA and the Office of Fair Trading (the OFT) published their joint finalized guidance on payment protection products.  The guidance sets out what the FSA and OFT require of firms as they seek to develop new payment protection products to meet the needs of consumers similar to those met by payment protection insurance (PPI).  The guidance stresses that new payment protection products may pose similar risks as PPI. When developing new payment protection products, firms should be mindful of the importance of: 

    • identifying the target market for the protection;
    • ensuring that the cover offered meets the needs of that target market; and
    • avoiding the creation of barriers to comparing, exiting or switching cover.

OFT Fines Payday Lender for Breach of Money Laundering Regulations

On August 9, the OFT published a press release stating that it had imposed a £544,505 fine on MCO Capital Ltd (MCO), an online payday lender, for breaching the Money Laundering Regulations 2007 (MLRs) and had also revoked MCO’s consumer credit licence.  Press Release.

MCO had failed to adequately verify the identities of loan applicants, which led to it being targeted by fraudsters who used the details of over 7,000 individuals to apply for loans.  MCO was also found to be engaged in unfair business practices by writing to people who they were aware may not have taken out loans, asking unequivocally for repayment.  MCO’s licence was revoked as the OFT found it lacked the necessary skills, knowledge and experience to run a consumer credit business.

MCO has a right to appeal the OFT’s decision.