Consumer lending: UK's action against MBNA

MBNA (MBNA Europe Bank Limited) entered the UK credit card market selling the concept of near-universal credit cards regardless of history and thereby repairing credit history. It aggressively marketed to low-income and debt-ridden families, targeting, in particular, those who were extensive users of store-cards which have high-rates of interest.

MBNA's approach was that its rates were lower than store cards. However, because of its high-risk customers, its rates were higher than those of the more common credit cards.

Over the years, its market has broadened but it still serves its core market.

A reference to The Office of Fair Trading by the Citizens' Advice Bureau, a charity that provides a wide range of advice and assistance across the UK, started an investigation into MBNA's recent practices. In particular, they complained that both borrowers and those trying to help them met obstacles when trying to resolve debt issues in which MBNA was involved.

According to the OFT, they "found that the company was not being sufficiently clear when communicating with customers in financial difficulty who were offering token payments, and was in some cases failing to follow its own policy or procedures by bypassing customers' appointed representatives."

The company has, the OFT, says "cooperated fully during the investigation and is in the process of addressing the issues."

Even so, the OFT says that MBNA must

" * make it clearer in letters sent to customers in financial difficulty that it will accept the repayment amount they have demonstrated they can afford to pay, and
* maintain its policy of only contacting customers who have appointed a representative to act on their behalf if the customer or the representative has given permission or confirmed that the representative no longer acts for the customer; or the expected payment has not been made and MBNA has made reasonable efforts to contact the representative without success."

Of course, some correspondence e.g. statutory notices and statements must be sent directly to the customer even if there is an appointed representative.

The OFT is the UK body that licenses credit businesses including issuing credit card licences. However, it is not the financial services regulator: that is The Financial Services Authority.

But the OFT is not making the requirements instantly effective: they come into force on 1 January 2011.

A breach of a requirement can lead to a maximum fine of GBP50,000 per breach and/or be grounds for revocation of a consumer credit licence.