Borrowers find it's pure hell being good

The devil's still in the detail, says Melanie Bien, as penalties for early repayment of loans survive a Government shake-up

With debt spiralling out of control in the UK and predicted to top £1 trillion within days, new rules are being introduced to ensure borrowers receive clear information about credit cards and personal loans - before they sign up for them.

With debt spiralling out of control in the UK and predicted to top £1 trillion within days, new rules are being introduced to ensure borrowers receive clear information about credit cards and personal loans - before they sign up for them.

Consumer minister Gerry Sutcliffe last week announced the Government's latest shake-up of the credit market, tightening up the way in which credit cards and personal loans are advertised to make it easier for people to compare products.

But while such a move is welcome, consumer groups argue that it doesn't go far enough. The Government has refused, for example, to abolish the practice whereby lenders penalise the 70 per cent of British borrowers who repay a loan early, even though clearing your debts should be encouraged.

Instead, the maximum that lenders can charge for early repayment will be reduced from two months and 28 days' interest to one month and 28 days' interest.

But because this practice won't be abolished, many consumers will be tied into expensive deals and discouraged from switching to some of the lower-rate loans that are frequently being introduced.

However, illustrating how important it is to shop around when choosing a loan, some lenders don't impose a penalty for early repayment. These are American Express, Bank of Ireland, Barclays, Egg, Intelligent Finance, Leeds & Holbeck, Nationwide, Newcastle, Northern Rock, Virgin Money and the Woolwich.

The National Consumer Council (NCC) also criticises the decision to implement the new regulations some way into the future. On existing loans of up to 10 years, the new limit will be introduced from May 2007, and for loans over 10 years it will apply from May 2010.

"[Borrowers] will have to make an extra month's worth of repayments and pay an additional one month's interest," warns Ed Mayo, chief executive at the NCC. "For vulnerable borrowers on weekly credit payments, this means an extra four instalments plus interest. This is just not good enough."

The Consumers' Association (CA) agrees that implementation should be brought forward. "The deadline of 2010 ... should be made much earlier to benefit disadvantaged consumers who need to spread their payments over a longer period," says Doug Taylor, campaign team leader of the CA.

The Government's new rules also address annual percentage rates (APRs), which many consumers use to compare credit cards - even though they often have no real value as different lenders work them out in differ- ent ways. This is set to change, with a standardised APR calculation to be used for credit cards and loans.

In advertising, APRs will have to be displayed more prominently than all other financial information: they can't be buried away in the small print. This change will be introduced to credit advertising from 31 October.

But the CA remains concerned that several issues have not been addressed, including a code of conduct for credit scoring and the impact of risk-based pricing on the vulnerable. "The devil's in the detail," says Mr Taylor. "We're concerned the proposed laws may not go far enough to address confusion."

One issue on which the Government has backtracked is the introduction of "honesty" or summary boxes on credit card statements. These are supposed to provide a clear snapshot of the main charges and fees, and the industry in general has expressed its commitment to providing them.

Some card companies are already including the boxes on their statements but the Government has decided not to make them compulsory. This means the information provided is unlikely to be standard and will therefore be of limited use in enabling consumers to compare the cost of products.

"Yet again it is down to the consumer to be completely vigilant and scratch beneath the surface to see whether a product is all it seems," says a spokesman at internet bank Egg. "You could question whether the consumer should have to do that."

Life and Style
Living for the moment: Julianne Moore playing Alzheimer’s sufferer Alice
health
News
Jay Z
businessJay-Z's bid for Spotify rival could be blocked
News
The spider makes its break for freedom
VIDEO
Voices
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
Sport
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle v United player ratings
Arts and Entertainment
books
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Graduate Application Support Analyst

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Reach Volunteering: External Finance Trustee Needed!

    Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

    Christine McCleave: FP&A Analyst

    £36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

    Recruitment Genius: Sales Executive - OTE £40,000

    £15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

    Day In a Page

    War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

    Baghdad fights to win back Tikrit from Isis – but then what?

    Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
    Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

    What is it like to live with Alzheimer's?

    Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
    The Internet of Things: Meet the British salesman who gave real-world items a virtual life

    Setting in motion the Internet of Things

    British salesman Kevin Ashton gave real-world items a virtual life
    Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

    Election 2015: A dead heat between Mr Bean and Dick Dastardly!

    Lord Ashcroft reveals latest polling – and which character voters associate with each leader
    Audiences queue up for 'true stories told live' as cult competition The Moth goes global

    Cult competition The Moth goes global

    The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
    Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

    Pakistani women come out fighting

    Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
    Leonora Carrington transcended her stolid background to become an avant garde star

    Surreal deal: Leonora Carrington

    The artist transcended her stolid background to become an avant garde star
    LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

    Education: LGBT History Month

    Pupils have been discussing topics from Sappho to same-sex marriage
    11 best gel eyeliners

    Go bold this season: 11 best gel eyeliners

    Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
    Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

    Cricket World Cup runs riot to make the event more hit than miss...

    The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
    Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

    Katarina Johnson-Thompson: Ready to jump at first major title

    After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot