The Public Accounts Committee (PAC) has accused the regulator of “missing serious problems” in the consumer credit industry due to its passivity.
MPs said that the Office of Fair Trading (OFT) does not have the information on lenders to regulate them effectively and pointed out that it has never given a fine to a company and “very rarely” revokes a company’s licence.
The committee, which is chaired by Labour MP Margaret Hodge, said that the OFT has relied on complaints from consumers and information from third parties to identify failings and urged the regulatory body to be more proactive.
In the report, the PAC said: “When the OFT does act the process can be very slow—it can take two years to revoke a licence—meaning that further consumer harm can take place in the meantime.”
It claimed that the regulator had not attempted to quantify the scale of harm to consumers when firms do not comply with regulation but the National Audit Office (NAO) has estimated that it is at least £450m a year.
The OFT responded to the criticism levelled at it by the report on the regulation of consumer credit.
A spokesperson for the OFT said: “Far from being timid, the OFT has taken strong, targeted action to tackle the areas of greatest risk to consumers.
“In the last financial year alone the OFT has revoked the licences of some of the UK’s largest credit brokers and debt management firms, and taken formal action in more than 85 other cases.”
Since 2011, around 100 debt management companies have left or been refused entry to the market.
The OFT recently wrote to 50 payday lenders, giving them 12 weeks to change their business practices or risk losing their licences.
It added: “We are disappointed that the committee has not acknowledged the constraints of the legislation under which the OFT currently operates which, as the NAO found, was not designed to provide a supervisory approach to addressing potential consumer harm.
“As the NAO recognised, these constraints include a lack of regulatory powers and the ability to impose fines only in very limited circumstances.”
OFT chief executive Clive Maxwell and David Fisher, director of consumer credit, went up in front of the PAC on 23 January this year to answer questions.