'Millions of borrowers' to benefit from new safeguards

We’ve all heard stories about borrowers burned by consumer credit: high-pressure sales techniques, unfair terms and conditions, extortionate interest rates and aggressive debt collectors.

These practices should not be tolerated, writes consumer affairs minister Gareth Thomas, explaining why the Consumer Credit Act will protect millions of borrowers.

The Consumer Credit Act is the biggest change to the lending market since the 1970s. It means more consumers than ever are better protected when it comes to borrowing money and buying goods on credit.

The first part of the Act came into force in 2007. In April this year, we brought in further measures which will transform UK consumer credit. A new option giving more power to borrowers if they have problems with their lender was extended to all existing agreements. The ‘unfair relationships test’ allows consumers to challenge agreements through the courts, making it easier to complain and get redress when they feel they’ve been treated badly.

The test allows courts to look at every aspect of the borrower/lender relationship and determine whether any circumstances are unfair to the customer. And if the borrower alleges the relationship is unfair, it’s up to the lender to prove the contrary.

We have also strengthened protection for consumers by giving market enforcers more leeway to crack down on the small minority of traders who treat consumers unfairly. The Office of Fair Trading (OFT) now has extended powers – which should mean consumers come across fewer rogue traders.

The OFT grants licences to lenders, but before the Act it could only take away or refuse licences in cases of serious misconduct. Now, it has much more flexibility in the action it can take against lenders who misbehave, such as placing extra conditions on a licence, imposing a fine of up to £50,000 for each condition breached, or revoking a licence entirely. And when lenders apply for a new licence or a renewal, the OFT can now scrutinise their applications with greater rigour.

What’s more, the OFT is now closely monitoring lenders in areas which present the greatest risk to consumers such as debt collection, commercial debt counselling and sub-prime lending. When the OFT has concerns about a particular lender, it can demand more information and visit the business to assess the situation firsthand.

But it doesn’t stop there. Many more borrowers now have the protection of the Consumer Credit Act. Previously, only agreements for sums below £25,000 were covered. That limit, introduced in 1998, isn’t a significant level of borrowing in today’s market. So we’ve removed it – new agreements taken out since April for any sum will be covered by the Act, unless specifically exempted.

These new protections build on the Act’s first tranche of measures introduced last year. This included free access to the independent Financial Ombudsman Service, whose remit was extended to cover consumer credit. Since April 2007, the Ombudsman has received 850 cases, mostly concerning hire purchase, debt collection, point-of-sale loans and store cards.

There’s more to come in October when we will introduce the final part of the Consumer Credit Act. The Act will be extended to cover two new categories of consumer credit business: debt administration and credit repair services.

And – crucial to the aim of the Act – new measures will mean lenders must give borrowers clearer and more regular information on the state of their credit accounts. This will make consumers less likely to run up unmanageable debts, and more likely to seek advice early if they do begin to experience financial difficulty.

The measures in this Act will see millions of borrowers benefit from tough new protections and better information about their debts. By tackling the rogues and driving up standards, we want to continue to work for a level playing field that allows honest businesses to thrive.

Gareth Thomas is minister for consumer affairs at the Department for Business, Enterprise & Regulatory Reform (BERR).