The U.K.’s National Audit Office issued a report last week that revealed regulation of the consumer credit market has cost consumers $727 million because the regulatory regime does not adequately protect consumers from abusive practices.
Data from the NAO revealed that the Office of Fair Trading saved consumers approximately $13.90 for every $1.62 the watchdog spent enforcing regulations between 2010 and 2011. During the same time frame, however, consumers lost $727 million due to gaps in regulation, including malpractice that was not reported to regulators.
The NAO said that the OFT does not have the adequate resources to supervise or monitor firms’ compliance with license standards on a daily basis. The OFT is only able to act when it receives a tip about a firm’s unlawful behavior, so harm to consumers must have already taken place in order for the OFT to prevent further losses.
The NAO report showed that the OFT had approximately $18.6 million to regulate the consumer credit market between 2011 and 2012, but the NAO said that, given the size of the market and degree of harm to consumers, the amount is inadequate. The OFT funds oversight and regulation of the consumer credit market solely from license fees.
“Good value for money in consumer credit regulation means minimizing avoidable harm and doing so cost-effectively,” NAO Comptroller and Auditor General Amyas Morse said. “The OFT has achieved a good return for a small outlay but has not been able to tackle the full extent of harm to consumers in credit markets. This is because it has not had enough resource to regulate effectively or the right kinds of powers. The government’s proposed new regulatory system will need to address these problems.”