Queen's speech promises tighter credit laws

Consumers are to get greater rights and improved protection in an overhaul of the credit laws announced today in the Queen's speech.

The consumer credit bill marks the final stage in the most significant reform of domestic consumer credit law in almost 30 years.

"Consumer credit law will be updated to provide greater protection from unfair lending practices and create a fairer and more competitive credit market," the Queen told parliament.

The plans include a new "unfair credit test" designed to make it easier for people to take lenders to court when they believe they are the victim of unfair lending practices.

Those who do not wish to take their cases through the courts will be able to go instead to the financial ombudsman, who will investigate disputes on their behalf.

As part of the measures aimed at making borrowing more transparent and improving consumer information, lenders will have to provide customers with an annual statement.

Businesses will be required to issue an arrears notice and an information sheet from the Office of Fair Trading (OFT) advising people on what to if they get into arrears on a loan.

The OFT will be given greater powers to regulate the credit industry and will be able to impose sanctions on businesses before removing their licences.

The measures also include the creation of a targeted licensing system, which aims to make the transition easier for lenders and reduce the burden of bureaucracy.

MPs have recently given credit card bosses a rough ride for confusing consumers with complicated APRs and loan agreements. In the summer, the Treasury select committee accused store card lenders of "highway robbery" and said they were running a "cosy cartel" by keeping rates high and because the way in which they were calculated is incomprehensible.

The spotlight returned to the problem of unscrupulous lenders recently when a Merseyside couple saw a ?6,000 loan spiral into a debt worth ?384,000. Other high profile cases, including credit customers who have committed suicide after running up huge, unmanageable debts, have also called industry practices into question.

Debt campaigners gave welcomed the measures, but said without a statutory limit on interest charges the bill would fail to tackle extortionate lending practices.

The campaign group Debt on our Doorstep said it would work with the DTI and MPs to ensure that maximum protection is given to vulnerable consumers from the worst excesses of extortionate and predatory lenders.

However, it said It would continue to push for a legal cap on the cost of credit coupled with support for affordable credit accessible at a community level.

Debt on our Doorstep is a network of over 150 local and national organisations committed to ensuring everyone has access to affordable financial services, and to putting an end to extortionate lending practices.

Members include credit unions, local advice centres, churches and people on a low income.
Alan Thornton, of Church Action on Poverty, said: "An interest-rate ceiling is the only effective way to really deal with the 'legal loan sharks', but we do welcome measures on credit cards to make things simpler to understand for consumers. However, we do think these measures need to be linked with the over-indebtedness action plan."

The over-indebtedness action plan was launched in July 2004, and sets out how thw government and partners, including the independent regulators, credit industry, voluntary sector and consumer groups, are addressing the issue of problem debt.