Paying the price

Guess who still got the gravy: a Merseyside father of two, who lost his job for a short while, after taking out a small loan; or a disgraced former MP, who was made bankrupt only three years ago? The Merseyside family, who wanted to borrow £2,000 for a small home improvement, were persuaded by the loan company to whom they turned to take out £5,750. They ended up owing 67 times as much (£384,000) and facing a court action to take away their home. The judge rightly ruled the 34.9% interest on their arrears as "extortionate" this week and cancelled their debt. It brought unexpected relief but could not wipe away almost 15 years of worry. No such problems for Neil Hamilton, bankrupt in 2001 when unable to pay £3.5m in legal fees for unsuccessful libel actions, but now miraculously able to move with his wife into a £1m manor house in Wiltshire.

The best thing about the Merseyside case - apart from the come-uppance delivered to loan sharks - is the extra support that such a scandal generates for the long-needed reform of the 1974 Consumer Credit Act. Loan sharks cannot be corralled on a case-by-case basis. They need something more systematic. A start begins on Monday when new regulations announced in June covering credit advertising come into effect. They make it an offence to conceal the true cost of a loan in small print. Better still, they will make it easier for consumers to compare offers; introduce a standard way of calculating the annual percentage rate (APR); and require the APR to be more prominent than all the other financial information.

But much more is needed as a white paper recognised last December. The rules covering consumer credit licences need to be tightened and made easier to impose. Currently only a handful are revoked and the process can take years. The rule banning unsolicited door-to-door calls to win new business is being circumvented by offering vouchers or even hampers. This loophole needs closing. Most contentious of all, ministers have ruled out imposing a cap on interest rates, following research which showed borrowing from unlicensed or illegal lenders is twice as high in countries where there are caps - France and Germany - as in the UK. True, extortionate credit is not confined to interest rates. All sorts of expensive add-ons need controls too. Even so, another look at interest rates after this week is needed.