The overhaul of consumer credit laws announced in the Queen's Speech this week is long overdue - it is more than 30 years since legislation protecting borrowers from unscrupulous lenders was last updated.
However, there's not much point in changing the law unless what we end up with is an improvement. And it is worrying that the draft bill unveiled by the Department of Trade and Industry on Thursday did not include two measures that most independent analysts think could be crucial.
First, the DTI said it did not believe there should be a maximum interest rate that lenders could charge. As a result, lenders who focus on borrowers whose credit histories are not so good will be able to go on charging obscene prices for loans. In some cases, these already cost several hundred per cent.
In addition, the DTI has ruled out forcing lenders to calculate their interest rates on a single standardised basis. This makes it difficult for borrowers to compare what's on offer. A credit card costing 15 per cent a year, say, may actually be cheaper than a card priced at 10 per cent a year, once you take into account factors such as interest-free periods and when charges become payable.
These two reforms should be at the centre of the new Consumer Credit Bill. But other changes in the law are needed too.
For example, lenders should have to share much more information with each other. The fact that many companies only release selective data about their customers to credit reference agencies has allowed borrowers to run up large debts with a string of lenders - on 10 different credit cards, for example.
It would also be useful to have better dispute resolution systems in place for people who fall out with their lenders. The Ombudsman scheme announced on Thursday will be a good start.
Some of these reforms have a "nanny state" feel to them. Partly, consumer credit legislation should make it harder for rogue lenders to exploit people. But many campaigners also want to see borrowers protected from themselves.
There is a debate to be had about whether this should be the role of the state. But it is worth pointing out that when large numbers of borrowers get themselves into debt trouble, they are not the only ones who are affected.
There is already evidence that the increasingly worrying consumer spending slowdown on the High Street is connected to the issue of debt. Borrowers are concerned about their ability to keep up with repayments on mortgages, loans and credit cards, so they're cutting back on spending, which has until now been keeping our economy afloat.
Beware of credit cards linked to your local football club. The winner of this afternoon's FA Cup Final between Arsenal and Manchester United gets prize money of £1 million. But that's small change compared with the amounts some clubs are making from expensive financial services.
The top five clubs in the Premiership this season - Chelsea, Arsenal, Manchester United, Everton and Liverpool - all charge a whacking 15.9 per cent for their credit cards, twice as much as the cheapest plastic available.
Football fans like being able to display their allegiances, and credit cards are another way to do this. But they're a good deal more expensive than a scarf.Reuse content