New powers for credit ombudsman

Consumers unhappy with the terms of a credit agreement will be able to take their case to an ombudsman from April 2006, the government has announced.

The Financial Ombudsman Service (FOS) will be able to investigate disputes between borrowers and lenders under the Consumer Credit Act.

Banks and building society customers can already use the FOS, but disputes with other lenders often end in court.

Typical areas of dispute include hidden charges for late or missed payments.

Intimidating

The Department of Trade and Industry said it expected that borrowers with active credit agreements when the new system starts will be able to use it, providing the problem occurred after the start date.

"Resolving disagreements fairly and quickly is a vital part of this process," Gerry Sutcliffe, Consumer Minister, said.

"Taking disputes to court can often be off-putting and intimidating for consumers as well as expensive, time-consuming and stressful for business."

Transparency

The expansion of the role of the FOS in credit disputes is part of a wider reform of the UK lending industry.

In June the government revealed its plans to reform the 30-year old Consumer Credit Act.

Key changes to the credit rules include a limit to the charges imposed by lenders for paying off a loan early.

Another is establishing a standard method of calculating the APR for credit cards, aimed at helping consumers to compare products.

At the time, the government said the reforms would increase transparency in the industry.