A recent report by the U.K.’s National Audit Office found that, while regulation of the consumer credit market is beneficial to consumers, the regulatory regime has been inadequate in protecting consumers from abusive trading practices.
U.K. consumers borrowed $286 billion between 2011 and 2012. The NAO estimates that the Office of Fair Trading saved consumers nearly $14 for every $1.63 it spent enforcing regulations between 2010 and 2011 through enforcement actions taken against non-compliant firms. Consumers, however, lost at least $732 million from issues not addressed by regulation.
The OFT, which funds consumer credit, does not supervise firms on a day-by-day basis but rather takes action only when it receives a complaint or information regarding a firm’s non-compliance with regulation.
“Good value for money in consumer credit regulation means minimizing avoidable harm and doing so cost-effectively,” Amyas Morse, the head of the NAO, 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.”
Consumer credit regulation by the OFT is funded by license fees, and though the office had $18.7 million to regulate the market between 2011 and 2012, the NAO said that the amount is not sufficient considering the size of the market and risk to consumers.
Additionally, weaknesses in the OFT’s management information prevents the office from ensuring that its limited resources are routed to the areas that pose the greatest risk to consumers.