Regulation on Secured Loans

The size of the secured loans or homeowners' loans market is estimated to be approximately £3bn with an average loan of £20,000 however secured loans are not regulated by the Financial Services Authority (FSA). The FSA only regulates first mortgages on the properties.

Secured Loans are regulated by the Consumer Credit Act 1976 which requires businesses providing secured loans to be licensed by the Office of Fair Trading (OFT). Due to the increasing number of repossessions in the last years, the OFT has also published a guidance on standards expected from secured loans lenders and brokers. The main purpose of this guidance is to ensure that lenders delay repossessions for borrowers having problems making payments.

If standards are breached, the OFT can revoke businesses' lending licenses and further regulatory actions can be enforced.

The Office of Fair Trading can also investigate secured loan businesses with evidences of malpractice.

Since 2008, Secured Loan lenders have also to comply with Pre-action Protocol for Repossession Claims Based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property. This protocol deals with cases going to court for repossession and try to encourage alternative solution to repossession.

The Office of Fair Trading is currently working on a new guide for creditors on Irresponsible Lending Practices.