New Consumer Credit Act - An Historic Missed Opportunity

The Government's Consumer Credit Bill has received Royal Assent marking the end of a lengthy process to bring UK regulation of the consumer credit market up to date. Unfortunately, the Consumer Credit Act 2006, contains no potection for low income consumers against usurious interest rates. Price issues will be only one of many matters that can be considered by courts and the financial services ombudsman when considering whether or not an "unfair credit relationship" exists, and it may take several years for definitive case-law to emerge. In the meantime, consumers may well have to look to the licensing regime, and to the recently agreed requirement that lenders must behave 'responsibly' - although guidance as to what will be considered 'irresponsible lending ' from the OFT has not yet been published.

Remarking that the Act was an historic 'missed opportunity' to improve protection for low income borrowers, Damon Gibbons, Chair of Debt on our Doorstep stated:

'Nearly 7 years on from our call for improved regulation of the credit industry, and after a DTI review lasting over 2 years, the Government still can't tell us what types of lending behaviour are unfair or irresponsible. When asked whether it is fair that low income borrowers should pay 200%, 500% or in some case 1000% interest for their loans, the Government's response has simply to be that the courts will be able to look at that in the context of the entire loan agreement. I have a feeling that we will back needing another bill on this issue within the next three years when the failings of this particular act become apparent.'

During the passage of the Consumer Credit Bill, the Government indicated that it would review the operation of any new Act and revisit the need for interest rate ceilings. No timescales have been set for the review.