Your Money: Time to put a cap on credit charges

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The Independent Online

The lowest interest rates in nearly 50 years is bad news for savers and good news for mortgage borrowers, as rate movements tend to feed through directly to customers.

If the Bank of England cuts the base rate by 0.25 per cent on a Thursday, you can bet your bottom dollar that by Friday most savings and mortgage rates will also have been adjusted.

But, strangely, credit cards and loans seem immune to all this. The base rate may be 3.5 per cent but many plastic providers charge interest at four times this amount.

As for loan sharks, they can charge the desperate what they want. The Consumers' Association tells of one couple who were charged an annual percentage rate (APR) of 38.7 for a £10,000 secured loan in 1989. Last year they found they still owed £54,000, even though they'd already paid back £41,000.

The forthcoming White Paper from the Department of Trade and Industry (DTI) will call for an update to the Consumer Credit Act, though I wouldn't get too excited just yet. What would be really useful is something the DTI shied away from in July when it announced its proposals for loans: imposing a cap on the interest lenders can charge. The White Paper will doubtless avoid putting a cap on the interest charged on credit cards as well.

The DTI is obviously keen to avoid strangling businesses with onerous rules. It wants a competitive environment for loans and credit cards, which is how it should be. How else would I be able to pay 0 per cent on balance transfers on my Halifax Platinum card for nine months? Or get a loan from Tesco Personal Finance over the internet and be charged 6.2 per cent?

The trouble is that not enough people are hunting for cheap deals. Instead, they are relying on their bank to supply their credit card. And if you bank with one of the "big four" - Barclays, NatWest, HSBC or Lloyds TSB - this is going to cost you. Meanwhile, if people are really desperate for money, then they will use a loan shark - even if commonsense tells them otherwise.

The DTI needs to step in and protect the vulnerable with a cap on interest rates on personal loans and credit cards. The White Paper is the perfect opportunity to do so.

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