HIGH STREET banks that mis-sell loans or hit borrowers with onerous charges will be hauled before a new credit dispute resolution body to face financial penalties.

Lenders face the threat of being fined thousands of pounds after the Department of Trade and Industry yesterday unveiled proposals for an Alternative Dispute Resolution (ADR) service enabling borrowers to launch fast-track complaints against lenders.

The ADR will come into force in April 2006, falling under the remit of the Financial Ombudsman Service, a self-regulatory industry body that is responsible for savings, investments and loans.

Banks and credit card companies have, however, raised fears that the costs of complying with the ADR, which will include a £350 fee for every case lodged, will encourage rogue debtors to launch spurious claims and tie lenders up in red tape.

A spokeswoman for the Ombudsman service, who admitted that current disputes typically took between four and six months to resolve, said she expected credit disputes to be “less complex” and be resolved more quickly.

John Lamidey, a director of the Consumer Credit Association, which represents home credit lenders, said: “There are fears of increased bureaucracy and costs with people abusing the system.”

The National Consumer Council, described yesterday’s plans as “an important step” and “a lifeline for borrowers in dispute with their lender”.

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