Understanding credit card charges can be confusing
The government has outlined its plans for a major overhaul of the UK credit market against a backdrop of growing concern over mounting levels of personal debt.
Loan sharks, irresponsible lenders and unfair rules contained in the small print of credit agreements are all in the government firing line.
The proposals to reform the 30 year old Consumer Credit Act will be put before parliament after it returns from its summer recess.
However, the proposals have been given a mixed response by consumer groups as new research highlights how far UK consumers have fallen into the red.
Consumer and competition minister Gerry Sutcliffe has outlined what reforms are planned in the upcoming consumer credit White Paper.
Main measures include:
Tighten access to consumer credit licenses to prevent loan sharks
Clamp down on firms which penalise consumers unduly for settling loans early
Require lenders to treat their customers "fairly"
Allow on-line credit agreements
Outline proposals for a UK-wide money advice service
The White Paper follows a long period of consultation and an ongoing investigation by the Parliamentary Treasury Select Committee into the credit industry.
Store and credit card providers have all been given a rough ride by the select committee in recent weeks.
"The changes I am announcing today will be fair to both lenders and borrowers. They will make it easier for borrowers to switch to better loan deals and ensure they have clear information about early settlement rules from the start of their loan agreements," Mr Sutcliffe said.
But while the government's plans to target loan sharks have been welcomed, the decision not to ban credit firms from charging
"settlement fees" when a loan is paid-off early has drawn criticism.
The government proposes to abolish rule 78 of the Consumer Credit Act allowing firms to only charge 28 days interest for early settlement.
According to the Department for Trade and Industry figures, 70% of loans are settled early, potentially earning lenders millions in fees.
Consumer groups see abolition of rule 78 as a half measure.
"We are disappointed... it still plans to allow lenders to charge borrowers one month's interest which means consumers will continue to be penalised for settling loans early by credit companies," Laurence Baxter, Senior Policy Adviser, Consumers' Association, said.
Changes to the Act are seen as particularly necessary because of the explosion of smaller credit offerings in recent years, with door-to-door lenders offering loans carrying sky-high interest rates and targeting the vulnerable.
According to a new report from market analysts Datamonitor, Britons owe an average of £3,383 in unsecured debt - £1,000 more than five years ago.
In addition, bank overdraft debt, one of the most expensive to maintain, has grown 40% in the same period.
The report said several years of economic buoyancy had left consumers heavily indebted, yet seemingly happy to carry on borrowing.
But it warned that debt-hungry consumers could be putting themselves in harms way.
"A slight increase in interest rates could make debt repayments unsustainable for many, thereby creating a debt spiral for many individuals," Alex Boorman, author of the report, said.