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The BBC's Rory Cellan-Jones
"Ministers are promising tighter rules"
 real 56k

Theresa Perchard, Citizens Advice Bureau
"There's a host of problems consumers have with credit today"
 real 56k

Wednesday, 25 July, 2001, 10:34 GMT 11:34 UK
Crackdown on rogue lenders
Credit card being swiped in a machine
The government is tackling outdated consumer laws
The government has announced new plans to crack down on loan sharks and irresponsible lending.

Melanie Johnson, consumer affairs minister, unveiled a series of proposals including a review of the 30-year-old Consumer Credit Act on Wednesday.

We will take action to protect vulnerable consumers who are preyed on by rogue lenders

Melanie Johnson, consumer affairs minister

Under the new proposals, the Office of Fair Trading (OFT) and courts will have enhanced powers to clamp down on loan companies that charge extortionate rates of interest - as much as 40%.

The Debt taskforce, which was set up by the government in October last year to review Britons' growing debt burden, also reported its conclusions.

It wants credit agreements to be clearer and more understandable, and has also proposed better ways of encouraging more responsible lending and borrowing.

The government said it would be the biggest shake-up of consumer credit laws for a generation.

Ms Johnson said: "There has been a worrying increase in the numbers of people falling into the debt trap, getting loans at often extortionate rates which they clearly can't afford to repay.

"We will take action to protect vulnerable consumers who are preyed on by rogue lenders and make sure that consumers get clear and understandable information so they know exactly what they are getting into before they sign on the dotted line."

Debt burden

Figures show that consumers have been borrowing record amounts over the past six months, tempted by a host of new companies apparently offering cheap credit.

Main proposals
Clamp down on loan sharks
Abolish early repayment penalties
Extend Consumer Credit Act to loans above 25,000
Stop interest-free credit sting
Encourage online credit agreements
More transparent loan information
Simplify advertising rules
Curb misleading marketing

And more people are having problems coping with debts.

The Citizens Advice Bureaux dealt with nearly one million enquiries about debts in the past year. More than 60% of those enquiries related to consumer debts, from loans, credit cards and overdrafts.

David Harker, chief executive of the National Association of Citizens Advice Bureaux, welcomed the proposals.

He said: "CAB advisers have seen a huge increase in the number of consumer debt enquiries, which have gone up by 30% over the past four years."

Consumers are meant to be protected from extortionate loan rates by the Consumer Credit Act drawn up in 1974.

But there is evidence some people are being forced to repay up to 10 times the amount they originally borrowed.

The government has now launched a consultation on proposed changes to the Consumer Credit Act, and is seeking responses by the beginning of October.

Locked gates
Trapped: The burden of debt can be very stressful

The government included examples of extortionate credit and dodgy lending practices in its announcement.

One anonymous client was able to take out up to 58,000 in unsecured loans from different companies in a four-day period.

There are other reports of consumers being charged as much as 1,800% annual interest.

The new proposals are designed to make it easier to track down rogue lenders and challenge unfair loans in court.

Out-and-out loan sharks will be shut down altogether.

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See also:

25 Jul 01 | Business
Q&A: How to manage debt
26 Jan 01 | Archive
Caught in the debt trap
17 Dec 98 | The Economy
Crack down on consumer credit companies
21 Dec 00 | Business
Credit card costs 'slashed'
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