Sam Dunn: It's pure 'n' simple: let's get wise on credit deals

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The Independent Online

The Queen and Kym Marsh are in this together.

The Queen and Kym Marsh are in this together.

Her Majesty and the singer who achieved celebrity with the manufactured pop band Hear'Say make unlikely allies but they do have something in common. They have both played a part in a drive to make credit - in all its forms from cards to shop and loan deals - a better deal for everyone, particularly the young.

The Queen hasn't pitched herself into the heated debate swirling round the UK financial services industry, of course. When she talked of "greater protection from unfair lending and ... a fairer and more competitive credit market", she was announcing the new Consumer Credit Bill in the House of Lords last week. Still, it was a handsome reminder that our vulnerability to parts of the credit industry is at last being properly addressed by the Government.

The Bill signifies the later stages in the wholesale reform of UK consumer credit protection. Critical changes include a new "unfair credit test" that should make it easier for borrowers to take lenders to court if they fall victim to unjust lending practices such as extortionate interest or punitive charges.

Such a case emerged last month when a judge wiped out a couple's £384,000 debt arising from a single £5,750 loan - ruling that the 34.9 per cent rate of interest was too high a price to pay.

Under the Bill, the Financial Ombudsman Service will be able to look into this type of case. The reforms will also give the Office of Fair Trading (OFT) greater powers to probe - and, critically, to fine - credit businesses that don't play fair. So far, stripping away a lender's licence to sell credit is as tough as it gets.

Additionally, lenders will have to send borrowers an annual statement showing exactly how much debt is outstanding.

And so to Kym Marsh, now a budding actress as well as a pop star. She has hooked up with the OFT to be the popular face of a campaign that aims to persuade borrowers to ask themselves 10 crucial questions before signing up to any credit deals.

I'm not a particular fan of sunny celebrities, but using a famous face to help raise the profile of the subject will have a greater impact than an earnest politician on those who matter: consumers.

The awareness campaign includes the following questions that borrowers must address: Do you know if the interest rate is fixed or will it vary over time? Are you aware what will happen if a payment is missed? And if you have the opportunity to repay the debt early, will you be hit with a financial penalty for doing so?

Simple stuff but still horribly overlooked by all too many of us. It all boils down to that most basic tenet of better personal finance management: get to grips with the terms on offer and then see if there are better deals available elsewhere.

No matter how many times the "shop around" mantra is chanted by consumer groups, debt counsellors and even the lenders, borrowers still refuse to help themselves by doing so.

The OFT unveiled a remarkable survey last week showing that a third of 18-to-24-year-olds had at some point fallen for the patter of store sales people by signing up to a credit agreement, without any prior intent of doing so, on a shopping trip.

Succumbing to this particular dose of retail therapy, the OFT argued, meant consumers were failing to search for a better deal and in danger of saddling themselves with uncompetitive rates.

Campaigns such as the OFT's are often derided by critics as a waste of time given the impetuous approach to life of "today's youth", and the temptation to live now and pay later.

How can you realistically expect someone about to buy a games console on store credit to ask themselves,"Do I understand this deal?", detractors grumble.

However, in tandem with the Consumer Credit Bill, we should see strides being taken towards giving everyone a better view of exactly what it means to live on credit.

As John Vickers, the chairman of the OFT, says, credit is a "major purchase" and a product in itself. It may well be a means to an end but it carries a price like everything else.

And as we're all slowly beginning to realise, prices can usually be beaten elsewhere.

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