The OFT estimates that 270,000 UK consumers paid an upfront fee to a sub-prime, unsecured credit broker in the past 12 months, typically between £50 and £70, on the expectation of being offered an unsecured loan.
Complaints to Consumer Direct about these upfront fees more than doubled between 2008 and 2010.
The OFT has also published two pieces of guidance relating to debt management and on the standards it expects of credit brokers.
The new credit brokerage guidance published for consultation sets out thatunder general contract law consumers may have a right to a refund of the upfront fee where no introduction to a lender is made. And that the OFT expects brokers, six months after introducing a consumer to a lender, to advise any consumer who has not entered into a relevant agreement of their statutory right to a refund of the upfront fee.
The OFT also intends to publish revised debt management guidance later in June 2011, designed to tackle a range of bad practices it has identified. This follows a period of high profile enforcement action following a warning to 129 debt management businesses in September 2010.
John Fingleton, chief executive of the OFT, said: “The super-complaint from Citizens Advice has been timely given our ongoing work to protect vulnerable consumers from poor practice in the credit sector.
“Our evidence suggests some businesses are deliberately taking people's money upfront with no realistic expectation of finding them the type of loan they need.
“We will continue to take robust enforcement action against businesses using unfair or improper business practices and we are providing new guidance making very clear the kind of behaviour we expect from the industry. We are also asking the Government to look at the impact of a ban on upfront fees.”
