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FSA fears consumer credit policing

The Financial Services Authority warned MPs yesterday that burdening the regulator with responsibility for policing consumer credit would risk swamping it altogether.

Calls for the FSA to oversee consumer credit ranging from bank overdrafts and credit card borrowing have grown louder amid reports of ballooning unsecured debt and fast-rising numbers of personal bankruptcies.

But yesterday the FSA's chairman, Sir Callum McCarthy, insisted to the Commons Treasury Select Committee that his organisation is not the right one for the job. Over the past year the FSA has extended its statutory functions to take on the regulation of mortgages and general insurance.

This brought 14,000 new firms under its wing - 90 per cent of them small enterprise rather than household names in banking and insurance.

Sir Callum said: "Giving to the FSA responsibility for consumer credit would mean that we would have to take on another 100,000 licensees." Because the FSA would have to deal with teams of trading standards officers on the ground, it was "far from clear" that such a move was appropriate, Sir Callum added.

His comments came as MPs voiced concerns that the FSA is struggling to communicate effectively and consumers were baffled by the array of financial products available. "Do you accept that at some point choice turns into confusion?" asked Susan Kramer, Liberal Democrat MP for Richmond Park.

Other MPs objected that the FSA seems to have reached only consumers who are already well-informed about financial products, leaving many more at risk. In the case of endowment mortgages, the FSA fears that hundreds of thousands of home-buyers may not have made any alternative arrangements if their policies fail to mature with a pay-out big enough to clear their mortgages .

The FSA said it is pressing the need for action on financial firms and has leaflets available in places such as doctors' waiting rooms and Post Offices. MPs also raised the question of payment protection insurance, sold to borrowers taking out unsecured loans io cover their repayments if they fall ill or lose their jobs before the loan is paid off.

John McFall, the committee's chairman, accused the FSA of dragging its feet, failing to get tough with the way that financial services firms sell this insurance. "Something needs to be done urgently," he said. "It seems that this problem has gone on and on and nothing has been done about it." The FSA should "name and shame" firms believed to be over-charging customers or mis-selling these policies.

Sir Callum agreed there was a major problem and the Office of Fair Trading had received a "super- complaint" from Citizens advice about the sale of PPL