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."

PROMOTED VIDEO
Arts and Entertainment
AKB48 perform during one of their daily concerts at Tokyo’s Akihabara theatre
musicJapan's AKB48 are one of the world’s most-successful pop acts
News
Ian Thorpe has thanked his supporters after the athlete said in an interview that he is gay
people
News
The headstone of jazz great Miles Davis at Woodlawn Cemetery in New York
news
Arts and Entertainment
Brendan O'Carroll has brought out his female alter-ego Agnes Brown for Mrs Brown's Boys D'Movie
filmComedy holds its place at top of the UK box office
News
newsBear sweltering in zoo that reaches temperatures of 40 degrees
Arts and Entertainment
Professor Kathy Willis will showcase plants from the Royal Botanic Gardens at Kew
radioPlants: From Roots to Riches has been two years in the making
Arts and Entertainment
TV The follow-up documentary that has got locals worried
Arts and Entertainment
Eminem's daughter Hailie has graduated from high school
music
Arts and Entertainment
Original Netflix series such as Orange Is The New Black are to benefit from a 'substantial' increase in investment
TVHoax announcement had caused outrage
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

News
One Direction star Harry Styles who says he has no plans to follow his pal Cara Delevingne down the catwalk.
peopleManagement confirms rumours singer is going it alone are false
Finacial products from our partners
Property search
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

    Information Security Manager (ISO 27001, Accreditation, ITIL)

    £70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Day In a Page

    Super Mario crushes the Messi dream as Germany win the 2014 World Cup in Brazil

    Super Mario crushes the Messi dream

    Germany win the 2014 World Cup in Brazil
    Saharan remains may be evidence of the first race war, 13,000 years ago

    The first race war, 13,000 years ago?

    Saharan remains may be evidence of oldest large-scale armed conflict
    Scientists find early warning system for Alzheimer’s

    Scientists find early warning system for Alzheimer’s

    Researchers hope eye tests can spot ‘biomarkers’ of the disease
    Sex, controversy and schoolgirl schtick

    Meet Japan's AKB48

    Pop, sex and schoolgirl schtick make for controversial success
    Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

    How Saudi Arabia helped Isis take over northern Iraq

    A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
    The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

    The evolution of Andy Serkis

    First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
    You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

    You thought 'Benefits Street' was controversial...

    Follow-up documentary 'Immigrant Street' has got locals worried
    Refugee children from Central America let down by Washington's high ideals

    Refugee children let down by Washington's high ideals

    Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
    Children's books are too white, says Laureate

    Children's books are too white, says Laureate

    Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
    Blackest is the new black: Scientists have developed a material so dark that you can't see it...

    Blackest is the new black

    Scientists have developed a material so dark that you can't see it...
    Matthew Barzun: America's diplomatic dude

    Matthew Barzun: America's diplomatic dude

    The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
    Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

    Meet the 'Quantified Selfers'

    From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
    Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
    Mrs Brown and her boys: are they having a laugh?

    Mrs Brown and her boys: are they having a laugh?

    When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor