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Last Updated: Tuesday, 23 November, 2004, 13:30 GMT
Credit industry shake-up unveiled
A credit card being swiped
The aim is to protect vulnerable consumers
Lenders will have to make clear to borrowers the full costs of a loan, under plans proposed by the government.

People paying very high levels of interest or bound by unfair credit terms will be able to take their case to an independent ombudsman.

Rogue lenders will also face tough new fines under the new credit bill.

The legislation is the latest move to reform the laws governing UK credit, with the aim of preventing vulnerable people from taking on too much debt.

Unfair credit

The Queen announced that the government's new credit bill would "provide greater protection from unfair lending practices and create a fairer and more competitive credit market."

The new credit bill will include the following measures:

  • Creates an "unfair credit" test, making it easier for people to take lenders to court if they feel they are paying an unnecessarily high level of interest or charges
  • Consumers to be given free access to the Financial Ombudsman service to resolve disputes over credit agreements with lenders
  • Lenders to provide annual statements to borrowers outlining in full the amount owed
  • Office of Fair Trading (OFT) to be given new powers to fine rogue lenders. At present, the only sanction the OFT has to remove a lender's credit licence

Most consumer organisations have welcomed the news.

The bill gives us the once-in-a-generation opportunity to prevent more people becoming trapped in grossly unfair credit deals
Teresa Perchard, Citizens Advice

"Consumers should now be able to enter into credit agreements better informed than in the past. These changes mean that UK credit has been adapted to the reality of the modern world," Malcolm Hurlston, chairman of the Consumer Credit Counselling Service, said.

Mr Hurlston added he was delighted the government had "kicked into touch" the idea of imposing an upper limit on interest rates.

"Such a limit would have forced people into the arms of illegal lenders," Mr Hurlston said.

Teresa Perchard, director of policy at Citizens Advice, said credit reform was long overdue.

"The law in this area has failed to keep pace with a rapidly changing credit market, and it is low-income consumers, who can least afford it, who have paid the price of inadequate controls," she said.

"The bill gives us the once-in-a-generation opportunity to prevent more people becoming trapped in grossly unfair credit deals from which there is no escape."

Soaring debt

The measures announced in the speech are all part of an ongoing revamp of the UK's thirty-year-old consumer credit laws.

The revamp occurs against a backdrop of soaring UK personal debt and concerns that interest rates rises may force heavily indebted Britons to the wall.

Consumer groups say the complexity and lack of transparency of some financial products make it difficult for consumers to pick the right product for their needs

Earlier this year, the government made a series of changes to the Consumer Credit Act 1974.

Under the changes, the APR, which refers to the costs of the loan, must be more prominent than all other financial information.

It also became an offence to conceal the true cost of a loan in the terms and conditions and companies that flout the rules could lose their consumer credit licence.

In addition, charges for paying off a loan early were limited to interest for one month and 28 days.

At present, lenders can charge two months and 28 days interest.

The Queen's Speech 2004






Pomp and pageantry


Watch the speech
MPs debate the speech


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