Consumer credit laws face shake-up
The Government has announced a shake-up of the 30 year-old consumer credit laws.
It plans to publish a White Paper that aims to clamp down on loan sharks, magnify the small print of loan agreements and end irresponsible lending.
Consumer Affairs Minister, Gerry Sutcliffe said the Government wants to end the rules which often penalise consumers who pay back loans early.
The Government intends to allow consumers to exit unfavourable credit deals without fear of excessive charges and increase the transparency of early settlement rules.
Mr Sutcliffe commented, “Back In 1971 only one type of credit card was available, compared to around 1,300 credit cards on the market now. And the amount of money owed on credit cards back then was worth £32 million but now it’s over £49 billion. I want to ensure our credit laws meet the needs of a modern credit sector.”
The reforms will abolish the formula often used by lenders to calculate how much consumers have to pay when they settle a loan early and introduce a new actuarial method to calculate costs, which the Government believes will be fairer to the lender and borrower.
Lenders will have to give early settlement examples and a summary of early settlement rules prior to the signature of a loan agreement.
In return the Government will allow most lenders to recoup their early settlement administrative costs by claiming one month’s additional interest beyond the settlement date and allow lenders to defer the settlement date for up to 28 days to allow both parties to organise the processing of the final payment.
Mr Sutcliffe added, “The current system is outdated and the formula used by many lenders to determine how much is owed always favours the lender as opposed to the consumer. The changes I am announcing today will be fair to both lenders and borrowers. They will make it easier for borrowers to switch to better loan deals and ensure they have clear information about early settlement rules from the start of their loan agreements.”
