Hard to credit, but they're going to change the law

Britain's 30-year-old consumer credit laws are to be kicked into the 21st century. But don't hold your breath. Department of Trade proposals to transform antiquated legislation into more customer-friendly rules are unlikely to be reality for years.

The DTI white paper published this week will have no impact on current agreements or on the sometimes controversial methods lenders use to chase debts.

Most changes will depend on the parliamentary time-table and nothing has been pencilled in as yet.

The proposals - if and when they are enacted - should go some way to evening out the currently unbalanced relationship between borrower and lender.

The white paper proposes:

· Clear, consistent information so consumers can make comparisons.

· Clarifying annual percentage rate calculations so all lenders use the same methodology.

· Reining in expensive payment protection insurances. Their sale can effectively double some loan repayment costs. Lenders will have to give separate information and have to sign a separate agreement.

· Ending "undue surprises" such as excessive fees for those wishing to pay off debts early and other hidden costs. Some concealed charges are used to subsidise apparently bargain interest rates in the early months.

· Reforming "extortionate credit" rules where only 10 cases have been brought successfully in nearly 30 years.

· Toughening the rules for consumer credit licences to reduce risks to consumers. Currently only a tiny handful of the licences are suspended or revoked each year. Decisions can take years.

But the most vulnerable could still face astronomic interest rates from licensed lenders. Lobbying by anti-poverty groups for a ceiling on interest rates- a system used in some EU countries and a number of US states - has been rejected due to "practical difficulties in a sophisticated and diverse credit market."

And although the DTI paper makes frequent mention to the problem of over-indebtedness, there is no coherent strategy to deal with it.

It will still be possible for lenders to bombard 18-year-olds with credit offers or for those with unblemished records to pick up enough plastic to borrow £50,000 or more. Nor do the proposals tackle "penalty charges" such as a fixed £25 fine for a payment of whatever level that is a day overdue.

The Consumers' Association is not over-impressed with the white paper.

"It is very disappointing the government has failed to put an end to early settlement fees which put consumers off switching and tie them into expensive deals. Some providers have already abolished them. The government should force the rest of the industry to follow suit."

The Consumers' Association is also concerned the government will only consult the credit industry over interest rate standardisation and transparency.

"Consumer groups must be consulted to ensure the solution is one that will work for borrowers," it says.

It also wants credit reference agencies such as Equifax and Experian to include positive as well as negative data. And it is also pushing for the end of agencies recording the number of times someone applies for credit. Too many applications suggest a bad credit record, preventing consumers from shopping around for the best deals on offer.

Where to find help

There are no laws to ensure lenders - or debt collection agencies - chasing arrears treat those in trouble through no fault of their own any differently from borrowers who run up big bills and then disappear.

The former can end up being treated more harshly than the latter - deliberate debt dodgers can be notoriously hard to track down.

But there are "voluntary guidelines" in the Banking Code to which all high street banks and building societies (although not all credit card concerns) adhere.

And the Office of Fair Trading has "debt collection guidance". Sections in these documents are designed to prevent court action and harrassment.

The Banking Code says banks will "consider cases of financial difficulty sympathetically and positively. We will do all we can to help you overcome your difficulties."

The code says: "We will develop a plan with you for deal ing with your financial difficulties and we will tell you in writing what we have agreed."

The banks promise to "tell you where to get free money advice" and "if you ask us to, we will work with debt counselling organisations."

The OFT guidance bans unfair practices including:

· Putting pressure on debtors to sell property or to raise funds through further borrowings.

· Sending documents that look like court papers.

· Claiming collection costs from debtors when there is no contractual agreement.

· Using oppressive or intrusive collection procedures.

You can get help from: National Debtline, tel 0808 808 4000;

Consumer Credit Counselling Service, tel 0800 131 1111;

Citizens Advice Bureaux, consult local phone book;

Money Advice Scotland, tel 0141 572 0237:

Federation of Independent Advice Centres, tel 020 7407 4070.