Consumers bodies have been calling for the FSA to regulate consumer credit as British households wrestle with a debt mountain that has soared through the £1 trillion mark.

However, appearing before the Treasury Select Committee, Sir Callum McCarthy, the FSA chairman. insisted that his organisation was not the right one for the job.

Changes over the past year have seen the FSA take over regulation of the sale of mortgages and general insurance, which includes cover for homes and people travelling abroad.

The new powers bought 14,000 new firms under the FSA’s wing, 90 per cent of which are small enterprises rather than well-known retail banking and insurance giants.

Sir Callum said: “Giving the FSA responsibility for consumer credit means that we would have to take on another 100,000 licensees.”

Sir Callum said that 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.

His comments were made as MPs voiced concerns that the FSA was struggling to communicate effectively and that consumers were baffled by the array of financial products available. The Treasury Select Committee said that Britain’s banks could face regulatory action because they were failing to distribute product information as required by new rules.

The FSA told the committee that lenders were still not distributing documents outlining key information on financial products to consumers, despite a large promotional programme. It said that the results of a “mystery shopping” exercise among lenders to see if they were providing this information as required under its rules were “disappointing”.

“We will continue to monitor this area closely through further supervision and, if necessary, we will take enforcement action,” the FSA said.

“Our supervision of this sector has identified a number of areas where we will need to continue to work with the industry to ensure that consumers are protected appropriately, as we envisaged when the regime was set up,” it said.

The FSA’s warning comes only days after it told financial services firms selling Payment Protection Insurance to improve their selling methods.

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