MONEY COMMENT
Shake Up In Consumer Credit Laws

By Jane Mack (TMFJane)
December 8, 2003

At long last the Government has finally published its plans to revamp the thirty-year-old consumer credit laws. It's been a long time coming and even now, the publication of the White Paper on the subject is open to consultation – any new laws won't be put on the statute books until at least next October. Still, it's a start.

Briefly, the proposals are to:

• Require lenders to provide standard information when advertising financial products so consumers can truly compare like-for-like. (For example, small print will have to enlarged);
  
• Set out fairer rules for people who pay back loans early. This will include the abolition of the infamous 'Rule of 78' which results in heavy penalties for the 70% of people who repay loans early.
  
• Strengthen the rules governing credit licences to ensure debt management companies and rogue lender come under closer scrutiny;
  
• Give the Office of Fair Trading the power to fine lenders and conduct surprise raids on debt companies;

Lenders will be told that they must all calculate Annual Percentage Rates (APRs) in the same way (did you know there are 11 different ways to do it!) to ensure proper comparability.

They also won't be able to get away with quoting 'typical' APRs in advertisements unless at least 66% of their customers are expected to get the quoted rate. Neither will they be allowed to trick borrowers into taking out Payment Protection Insurance by automatically including it in a loan agreement – customers will have to actively consent to it by signing for it separately.

There are plans to ensure that credit reference files differentiate between a would-be borrower making an enquiry of a lender and actually taking out credit with them. Currently, all applications leave a 'footprint' on a person's file which can have an adverse effect on their credit rating even if they don't follow through with the application. It should ensure people can shop around without being penalised for it.

At the moment the regulations only apply to credit agreements of up to £25,000. The limit will be removed so that all forms of consumer credit will be regulated. And provisions designed to protect consumers from so-called 'extortionate' credit agreements will be widened to include any that are simply 'unfair' (for example, pressure-selling). The Office of Fair Trading will provide clear guidance on what it deems unfair.

The government also plans to set up a new telephone advice service to give free information to consumers who get into debt. There are several organisations providing free advice such as the Consumer Credit Counselling Service and the Citizens' Advice Bureaux but the aim is to have a central number so that those in difficulty can be signposted to the appropriate sort of advice.

All in all, these proposals are to be welcomed and are long overdue. Lenders have been able to hide behind complex small print for far too long and it's about time they were made to be clear and upfront about the deals they're offering to consumers.

• Read the Consumer Credit White Paper (be warned though, it's a big, nasty 149-page pdf file)
• Visit the Dealing With Debt discussion board