Forum Brief: Consumer credit

The government was on Wednesday setting out new rules which aim to increase the transparency of the credit market. The proposals are designed to reform the 30 year-old credit laws which many consumers find confusing.

Government Response: Department of Trade and Industry

Gerry Sutcliffe, consumer affairs minister, said: "This is all about transparency, enabling and empowering consumers to make informed choices. Credit is an integral part of our lives. If used properly, it can be a very useful tool. But lending and borrowing must be clear, open and responsible.

"These reforms ensure that at every step from the moment a consumer considers using credit, to when they sign on the dotted line, right through to when the agreement ends, they will have the fullest information possible about how much they need to pay and for how long, enabling business and consumers to make responsible lending and borrowing decisions."

Forum Response: Consumers' Association

Doug Taylor, campaign team leader of the Consumers' Association, said:  "While many of the new regulations outlined today may improve consumer welfare in the mainstream consumer credit market, the devil's in the detail. We're concerned that the proposed laws may not go far enough to address confusion in this market. We also fear that there will still be loopholes, particularly within the advertising regulations which may be open to misinterpretation.

"Specific requirements we have are, in relation to consumer credit advertisements, that the APR should be shown in all advertising of all credit products and that the deadline of 2010 in relation to early settlement regulations should be made much earlier to benefit disadvantaged consumers who need to spread their payments over a longer period.

"We are also concerned that several issues may not have been addressed in the new regulations including interest calculation methods, post-contractual information, credit scoring, credit data sharing, impact of risk-based pricing on the vulnerable and financial services advice.

"We believe these issues need to be addressed in legislation."

Forum Response: National Consumer Council

Ed Mayo, chief executive at the National Consumer Council (NCC), said: "We welcome some of the new rules - especially a standard way of calculating APRs which has been a long-standing NCC campaign. Greater clarity in credit advertising and illustrative examples of charges for paying loans off early are also welcome. It is one step forward, but in other ways, two steps back.

"Under the new rules, borrowers will still be penalised for settling their loans early. They will have to make an extra month's worth of repayments and pay an additional one month's interest. For vulnerable borrowers on weekly collected credit this means an extra four instalments plus interest. This is just not good enough. Seventy per cent of borrowers pay off their loans early and will be hit by these unfair penalties.

"We are astonished to see that the 'honesty box' will not be compulsory, will depend on lenders' goodwill and will lack the prominence it requires. We want key information presented clearly at the top of the agreement within a defined perimeter. With consumer debt growing to record levels, people need clear information and no hidden charges."

Forum Response: Nationwide

A spokesman for Nationwide said: "Nationwide has a fair and transparent approach to both credit cards and loans.  Nationwide's personal loan and all three of its credit cards do not use typical rates and we do not operate risk based pricing. 

"Nationwide was the first credit card provider to publish a summary box in its credit card literature.  Nationwide would like to see all credit and store card providers having to publish Summary Boxes.

"Nationwide does not use typical rates. The APR for its Classic Card is 11.5 per cent
(0 per cent for the first six months and 13.9 per cent on-going). The APR for Comic Relief and Cash Reward cards is 15.9 per cent.  This is unlike many other high street
providers such as Halifax and Barclaycard.

"Nationwide ensures that when customers make a payment to their credit card
it is applied to the most expensive debt first. This is beneficial to the customer and again is unlike how most other card providers apply payments. Nationwide is the only card provider not to charge foreign currency loading anywhere in the world.

"With regards to personal Loans Nationwide does not use typical rates.   Nationwide is the only high street loan provider to use a one rate for all approach.   The low rate of 6.7 per cent is offered to all customers, regardless of loan amount/term required or if they choose to take out the loan in branch, by phone or online.     If a customer wants to pay off their loan early they will not incur any
early repayment fees or additional charges."