David Prosser: Time to get tough with debt collectors

Usually, when regulators announce reviews such as these, it's because a minority of companies are breaking the rules. But in this instance, it's not just a case of a few bad apples - the consumer groups that work with borrowers say most of the barrel is rotten.

The background to the OFT's probe is that two years ago, the watchdog set out clear guidelines on how these agencies should behave. The idea was to set minimum standards in an industry renowned for mistreating customers, who are often very vulnerable.

Two years on and little has changed. The OFT has received almost 1,800 complaints about dodgy debt collectors since July 2003, when the rules were introduced. Agencies are routinely harassing borrowers, getting the facts wrong and refusing to work with other agencies, such as Citizens Advice, which often step in to represent people in trouble.

Some of the stories are horrific. Citizens Advice, for example, has recently dealt with a case in which a family pleaded for time to repay its debts because one of its children was very ill, preventing the parents from working full time. The debt collection agency's response was to warn it would have the child taken into care - a threat it had no power to carry out, but which sent the parents into a panic.

People often think of debt collection companies as shady businesses - rough and tough bailiffs, or outright loan sharks. In fact, in order to act as a debt collector, you must have a consumer credit licence from the OFT. Many of the 500 or so businesses with such a licence are owned by large, respectable companies that people would expect to have higher ethical standards.

The OFT is partly to blame for the ongoing scandal. Despite receiving all those complaints, it has revoked just 12 credit licences during the past two years and sent out less than 80 warning letters. Not every complaint will have been justified, but this disciplinary action represents a pretty minimal response.

But it's only fair to point out that the OFT needs more powers. Revoking a company's licence is its only real sanction. Often, debt collection represents a small part of a large lender's business, so cancelling its licence would be a disproportionate response to misdeeds.

A shake-up of Britain's consumer credit laws, going through Parliament, will help. It will give the OFT more powers to investigate lenders and debt collectors. The watchdog will find it easier to publicly name and shame companies, and to issue fines. But all these powers are useless unless the OFT is prepared to be much tougher.

So far, it has been too slow to respond to the flouting of its own rules, and too lenient when it has taken action.

* If your cheap mortgage deal is coming to an end, take action now to save yourself money - although the bank of England cut base rates last week, you'll still pay more if you move from a short-term fixed or discounted home-loan deal on to a lender's standard variable rate.

Bradford & Bingley says 800,000 borrowers will come off two-year fixed-rate deals this year. The mortgages were taken out in 2003 when rates were even lower than they are now, so these people face big increases in their monthly repayments.

Yet the Council of Mortgage Lenders says levels of remortgaging fell in June for the sixth month running. That suggests borrowers are not doing enough to protect themselves.