UK To Have New Consumer Credit Laws

by Robin Pilgrim, LawAndTax-News.com, London

20 March 2003

Radical proposals to change UK credit laws, which are expected to become law in 2004 and have been unveiled for consultation by UK Consumer Affairs Minister, Melanie Johnson, will make it easier for consumers to challenge unfair credit agreements.

Consumers will be able to fast track complaints about extortionate loans through a new body, which will be established to consider disputes about the terms of agreements and whether a lender has acted in a responsible manner. Consumers will need a lower burden of proof to challenge loan agreements in the courts as they will only need to prove the credit agreements are "unfair" rather than having, as they do at present, to prove they are "grossly exorbitant".

Melanie Johnson told a conference of the British Bankers Association, "I want to deliver a far better deal for consumers and give them real power to challenge unfair credit agreements. There should be no scope for lenders taking advantage of vulnerable borrowers in today's credit market. This overhaul of credit laws will allow consumers to challenge unfair practices at any time throughout the term of an agreement and to do so without going to court."

The measures outlined include:

• changing the law to make more credit agreements challengeable on the grounds of them being unfair;
• setting up a new body to enable consumer complaints to be fast-tracked without going to court;
• allowing third parties such as the OFT or consumer bodies to take action on behalf of borrowers;
• making it easier for consumers in difficulty to apply to the court for an order allowing them to pay their debt; and
• ensuring lenders provide appropriate and timely information throughout the credit agreement.

Consumer groups welcomed the proposed DTI overhaul, which has been put out for consultation. "These proposals are particularly welcome at a time of rising consumer debt," said Delroy Corinaldi, public affairs officer at the Consumers' Association. "People in serious debt are often desperate and vulnerable and it is far too easy for loan companies to take advantage of this."

The National Consumer Council was also pleased that the government was taking a serious look at the "current outdated system". The British Bankers' Association and other lenders broadly welcomed the proposals.

However, Keith Mather, of the Consumer Credit Trade Association, which represents credit lenders, ex-pressed reservations about the increase in regulation. "Some of these issues are already covered by current regulation on unfair terms [of loan agreements]. When you look at the regulation now emerging from the DTI, FSA and Europe, the last thing a competitive and innovative credit industry wants is more regulation if it is duplicative," he said.

The number of British households in financial difficulties has risen to 25 per cent in the last year, according to the latest figures from the Department of Trade and Industry. Individual borrowing rose by 13.7 per cent during that time to a total of £835 billion, says the Bank of England.

Helping to hold up this debt mountain are the one in five adults who are denied access to mainstream credit. It is this group who stand to benefit from a major reform promised in the UK credit laws.

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