Call for tighter lending rules

Debt levels are continuing to rise

Money lenders in the UK should be forced to pay more for their credit licences, according to a consumer group.

The National Consumer Council (NCC) says the extra money raised from the higher charges should be used to fund a clamp-down on rogue lenders.

In addition, the NCC's chief executive, Ed Mayo, is to tell the annual Trading Standards Institute conference on Wednesday that lenders should commit to a "responsible lending" policy to prevent consumers borrowing more than they can repay.

His call coincides with new figures showing credit cards and personal loans are more popular than ever.

Stronger system

Mr Mayo will identify the plight of consumers who - having been refused loans from mainstream banks - have to borrow money from firms charging exorbitant rates of interest, sometimes as high as 360% per year.

People are funding their spending habits through higher and higher levels of debt

Philip Middleton, Ernst & Young

"The exploitation of vulnerable borrowers would stop if government put a stronger system in place to weed out these loan sharks once and for all," Mr Mayo will tell conference delegates.

He will call for the government's reform of consumer credit legislation, planned for the autumn, to include the following:

• A free ombudsman service for all borrowers to investigate and challenge unfair credit agreements
• Higher fees for all credit licences to go directly to Trading Standards so they can better police high-risk credit businesses
• Alternative ways of borrowing for people on low incomes, such as credit unions
• The government to make responsible lending a condition of the lender's licence, as part of the general duty not to trade unfairly.

Saddled with debt

A report from accountancy firm Ernst & Young indicates the size of the debt mountain facing UK consumers.

For the first time the report concludes that more than 50% of consumers are saddled with some form of debt.

"It's a worrying trend that although consumer spending continues unabated, real household income is flat," says Philip Middleton, head of retail banking at Ernst & Young.

"People are funding their spending habits through higher and higher levels of debt."

What is more, Mr Middleton said that the rise in debt levels was particularly noticeable amongst older consumers who seem to be abandoning their traditional aversion to borrowing money.