HM Treasury and BIS have now published their response to the consumer credit aspects of the Consumer Credit and Personal Insolvency Review.

The response sets out details of a new agreement with the main banks concerning current account default charges, as well a new agreement with store card providers. It also provides further details of newly commissioned research to assess the likely impacts of price caps in the high cost credit sector. However, the overall approach being taken by Government is to pursue improvements in practice through industry wide agreements and by strengthening lender codes of practice rather than to regulate and Government has overturned its previous commitment to place a cap on excessive credit card and store card rates.

Bank Charges

The Government has been working with the British Bankers’ Association and key current account providers to agree further commitments to improve transparency and control of charges for consumers. These commitments will apply to all full-facility accounts offered by the major current account providers including Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander, representing 85 per cent of the personal current account market in the UK. Specifically, the agreement comprises:

• Customers will be able to opt in to a text alert service indicating when their current account balance is running low or they are about to go into an unarranged overdraft. Customers will also be made aware of a ‘grace period’ within which they bring their account back into line without incurring any fees.
• Customers will also be provided with a small ‘buffer zone’ within which unarranged overdraft fees will not be levied.

Text alerts will be made available from March 2012, with the other commitments to be delivered by March 2013 at the latest, although no details have been provided as to how long the 'grace period' or how much the 'buffer zone', will be.

As a result of European legislation, current account customers will also be entitled to an annual statement from the end of this year, which will set out how much they have paid for their account over the previous 12 months. From September 2013, customers will also be provided with a new guaranteed 7 day switching service which is designed to encourage people to move accounts to ensure they are getting the best deal and to increase price competition in the sector.

Store Cards

Government has secured an industry wide agreement which will ban direct commission to sales staff, and introduce a good practice training scheme and a seven day ban on retail incentives when a consumer takes out a store card. This ban will mean that stores will not be able to offer discounts, free gifts or similar incentives to encourage consumers to take out store cards at the point of sale, or for the first seven days.

The measures will be introduced by the second quarter of 2012.

High Cost Credit

The Government has now indicated that research into the potential role of caps on the total cost of credit will be undertaken by the Personal Finance Research Centre based at the University of Bristol. The research is expected to conclude in the summer of 2012.

The Government will also work with the main trade associations representing payday lenders to introduce enhanced consumer protections in their existing codes of practice. The response indicates that work has already started with the trade associations and consumer organisations to build on existing codes of practice so they include clear commitments on issues such as advertising, the use of continuous authority, roll over loans, dealing with consumers experiencing financial difficulty and data protection.

Government will also work with stakeholders to examine how greater data sharing could lead to better lending decisions and will also take forward discussions with the industry to improve customer knowledge of the credit scoring process and ensure that people with ‘thin’ credit records are not placed at a disadvantage when applying for credit.

However no further action will be taken with regard to the Home Credit industry despite most respondents to the review indicating that the Competition Commission remedies imposed on home credit lenders following their inquiry in 2006/7 have not been effective. Government indicated that it does not believe these remedies have been in place long enough to make a proper assessment of their effectiveness.