There has been a lot of talk recently regarding the introduction of more rules and regulation around the loan industry, particularly in the area of secured loans and homeowner loans.

Currently, mortgages are regulated by the financial Services Authority (FSA) and any company providing, or advising on mortgage loan products, must be authorised by the FSA to do so and must hold suitable qualifications to show competence in this area of loans. However, secured loans and unsecured loans are currently free from any such regulation and there are a number of industry groups which feel that this should change.

The Organisation for Economic Co-Operation and Development (OECD) believe that it is vital that individuals are made fully aware of the long term implications and commitments of applying for a loan of any kind, before they sign the agreement, as this would raise awareness and help people to avoid getting themselves into excessive personal loan debt. The OECD feel that tougher rules for the loan industry would help to avoid a repeat of the recent credit crunch and recession, which was largely caused by bad credit loans and individuals being unable to manage their existing loan debts.

The OECD have proposed that the government should introduce legislation which requires all loan companies to provide illustrations in clear and plain English, which highlight the monthly loan repayments, the long term commitments of the loan and the implications of not maintaining the payments on a regular basis. These warnings should be a prominent feature of the illustration and all lenders should adopt the same wording in the interests of clarity for consumers.

Andre Laboul of the OECD commented that many consumers do not understand the commitment involved in a loan. He said “Surveys of financial literacy continue to show that consumers in virtually every country lack adequate financial backgrounds or understanding and that they underestimate their needs for education in the financial area.”