Department of Trade and Industry: Misrepresentation of Interest Rate Disclosure in Europe -
Office of Fair Trading: Study on Misrepresentation of Interest Rate Disclosure in the UK |
A Japanese bar association has asked partners in Germany to comment on the annexed graphics showing that interest rate disclosure in Germany would only cover about half of the true cost of the credit. They got these graphs from the UK Department of Trade and Industry (DTI). While the UK is not represented in the graph, France and Germany are once again taken as bad examples.
What makes this representation so misleading is the fact that instead of effective interest rates as prescribed by the law the DTI compares nominal interest rates which have their only function in caculating the interest but do not represent the true cost. Does DTI not know this?
The second graph omits the UK which, according to an 1998 empirical research conducted by iff on behalf of the European Commission, was and still is the worst offender against disclosure laws. At that time, consumer credit in the UK already had exorbitant high insurance premiums which are truly only hidden provision which the insurer pays up to the bank. Calculation revealed that such a credit insurance cost up to 13 times more than they would cost as a separate product. Insurers told us that they do not get paid more than the cost of the separate product. All the money would thus be recycled to the bank as a hidden provision.
As Royal Bank of Scotland is one of the prominent offenders in Germany, where customers are greeted into credit contracts with short-term extremely favourable nominal interest rates while secretly disclosing an additional 9.7% p.a. for insurance, we would expect UK bodies DTI and OFT to be the first to ask for a strict regulation. Such a demand was proposed in 2000 by the first Draft of the new credit Directive, but as rumors have it, it was especially at the request of the DTI (as was already the case in the 1998 hearing on our report) which, together with the industry, succeeded in getting these prescriptions removed. The previous Austrian presidency of the Council tried to reinsert a strict provision whereby any form of obliging customers to contract such an insurance should lead to its obligatory inclusion into the APR.
Finally, the Japanese had the impression as though DTI disclosed the average credit cost in these countries. When infact such statistics are not available, neither in Germany nor anywhere else. So these statistics must have been based on the worst cases.
It is true these cases do exist in Germany, the Netherlands, France, the UK and Ireland in different degrees. But it is hardly understandable that Canada and New Zealand are the only ones to manage not to have this kind of intransparency.
So whoever did these statistics should either remove them or give adequate information alongside the graphics for the different countries.
As already commented on with reference to other misleading "empirical research" results produced by DTI concerning Germany and France (see link), we would appreciate it if information about other countries did not form part of internal politics in one country.
The DTI could also just consult the study the Office of Fair Trading has made available on Payment Protection Insurance. It shares most of the concerns ECRC has with this form of extra profit. We have annexed this study too. |
| ID: |
38267 |
| Author(s): |
iff |
| Publication date: |
24/08/06 |
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Created: 24/08/06. Last changed: 07/09/06.
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