The OFT has published guidance on standards expected from lenders and brokers engaged in second charge / secured loan lending.

Businesses offering or arranging second charge secured loans - often referred to as 'homeowner' loans and involving consumers with an existing mortgage taking out a further loan secured against their home – must now be licensed by the OFT.

The guidance has set out the minimum standards the OFT expects from businesses engaged in second charge / secured loan lending if they are to be considered fit to hold a licence. It covers the entire secured loan lending process including selling techniques, customer care, and practices around the management of arrears.

Secured loan lenders are warned to avoid high pressure selling and irresponsible lending, with importance placed on transparency and fair business practice.

The guidance states that brokers working on behalf of secured loan lenders should not “act in any way which is deceitful, unfair, oppressive or improper, whether lawful or not.”

Brokers have also been warned that commission payable by the secured loan lender to the intermediary must be disclosed to the borrower at an early stage so that they are aware of any potential conflict of interest. The guidance adds that secured loan lenders must ensure that remuneration payments don’t provide undue incentive for brokers to recommend a secured loan product that may not be appropriate for the consumer.

Ray Watson, OFT Director of Consumer Credit, said: “Second charge secured loan lending is considered a high-risk activity by the OFT given the risk that borrowers could end up losing their homes if they default on payments.

“All businesses operating within this sector should act with appropriate regard to consumer protection and fair business practices. Our latest guidance reflects this, and we expect all firms within the secured loan sector to comply with it.”

Posted 05/08/2009 08:08:14