“Consumer credit law will be updated to provide greater protection from unfair lending practices and create a fairer and more competitive credit market.”

The government announced primary legislation to update its outdated consumer credit laws.

The existing Consumer Credit Act dates from 1974 and the issue of indebtedness is a subject that has received extensive coverage following the announcement that debt had passed the £1 trillion mark.

The issue of consumer finance has many strands and a variety of statutory instruments and associated guidance have already come through in 2004.

This builds on the government’s consumer credit white paper, published in December 2003, which set out its priorities for the future of consumer credit.

The white paper, “Fair, Clear and Competitive - The Consumer Credit Market in the 21st Century” advocated the strengthening of the rules governing credit licences; giving the Office of Fair Trading the power to fine moneylenders and conduct surprise raids on debt companies; the standardisation of information when advertising financial products to ensure ease of comparison; and the setting out of fairer rules for people who pay back loans early. These strands formed the basis of the Bill.

The white paper indicated that primary legislation would be required to implement the recommendations (pp.96-103):

“We are committed to acting quickly, effectively, and in partnership to create a framework in which consumers get a fair deal and business the certainty and freedom to continue to innovate.”

However, with the release of a research report looking into the possibility of interest rate ceilings, the government announced its decision not to include any ceilings for the time being as part of its shake-up of consumer credit law.

The report concluded that it should not be included for the moment because ceilings could limit low-income borrowers’ access to credit, diverting them to less transparent and less appropriate products, or even to illegal loan sharks.

A recent example was that of a Merseyside couple who had taken out a home improvement loan with an annual percentage rate of 34.9 per cent. A court ruled in their favour after it was deemed that the spiralling debt from this very high rate was unfair.

House of Commons

First reading: December 16 2004 (HC Bill 16)

Second reading: January 13 2005

Committee stage:

• 1st sitting: January 25 2005 (am)
• 2nd sitting: January 25 2005 (pm)
• 3rd sitting: January 27 2005 (am)
• 4th sitting: January 27 2004 (pm)
• Bill as amended: HC Bill 48

Remaining stages: March 3 2005

House of Lords

First reading: March 7 2005 (HL Bill 36)

Second reading: Never reached.