 Rogue firms can charge more than 100% interest |
People who are ripped off by rogue lenders need better protection, according to the National Consumer Council (NCC).
Borrowers, often turned down for credit by High Street banks, find themselves in the clutches of unscrupulous lenders that charge sky-high rates of interest, says the NCC.
A rigorously enforced system of licences is needed to combat this menace, it adds.
The NCC also wants the government to set up a free-to-use ombudsman service for credit-hungry consumers, suggesting that lenders who continue to mistreat the public should lose their right to trade.
Loan misery
Thousands of people each year are forced to resort to backstreet lenders.
Some firms use hidden charges and penalties to create, in effect, interest rates of more than 100 per cent.
In just one example, a client borrowed �5,000 to pay off existing debts. A few years later she discovered she had repaid �17,000, only to be told she would have to pay another �20,000 to get rid of the debt.
The government announced last year that it intended to crack down on credit companies that charge extortionate rates of interest, but some campaigners fear it will shy away from capping interest charges.
The NCC wish-list of measures to tackle unscrupulous lenders is in direct response to the government's consultation on reform of the UK credit industry.
Bad practice
Last week government plans to reform consumer credit licensing and introduce a wider range of sanctions against rogue lenders were welcomed by the Office for Fair Trading (OFT).
However, the NCC would like the government to go even further in its bid to enhance consumer protection. It proposes:
Meaningful fines and a points system, similar to the driving licence scheme, so traders who get pulled up more than three times can automatically lose their licence. Enforcing stricter licence application checks, consistent policing, ongoing supervision and monitoring of high-risk credit traders throughout the period of their licence. An easy-to-use, free-of-charge ombudsman service for people exploited by unfair credit practices with the power to make firms pay compensation. A general duty not to trade unfairly, for example, when a lender persuades a person in debt to take on another, inappropriate loan, rather than reschedule repayments. Frances Harrison, head of research, policy and development at the NCC, said the government needed to put a tough regime in place and to " better police all credit lenders, such as banks, loan companies and retailers to help crack down on, and prevent, bad practice."
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