Our UK ECRC partner CfRC publishes a weekly newsletter (see www.responsible-credit.org.uk/subscribe-to-cfrc) which shows a major concern of UK policies with access to financial services issues including now especially questions of affordability and social justice. Among rules concerning the overriding in overdraft credit (extreme and non-transparent fees), access by ex-prisoners to credit and its consequences, the outgoing labour party now in opposition seems to change its policies by asking for rate caps which they constantly denied in the last twenty years. ECRC still remembers when its government officials tried to convince even the EU to ban rate caps in those countries where they are successfully in place and have been for quite a long time.
Here is the news:
MP puts down 10 minute rule bill on rate caps
Stella Creasy MP, (Lab, Walthamstow) has put down a 10 minute rule bill calling for the Government to introduce rate ceilings as well as to take forwards other measures to address financial exclusion.
The Consumer Credit (Regulation and Advice) Bill will be debated on 3rd November. Supporters of the End Legal Loan Sharking campaign are asking for people to lobby their MPs to attend the debate and to sign Early Day Motion 872, which Stella has also laid down.
The Bill calls for:
- A cap on the total lending rate that can be charged for providing credit and imposing additional interest on late payment and default charges
- A levy on the sale of credit cards and store cards to set up a fund providing grants for the provision of debt advice and financial management services
- Powers for local authority planning committees to enable them to restrict the provision of premises for licensed consumer credit agencies within a local area
- Requirements for the Post Office network to provide back-office functions that integrate its services with credit unions, thereby helping consumers access credit union loans, current accounts and savings accounts through Post Office branches
Further details see MP Stella's website at www.workingforwalthamstow.org/2010/10/press-release-mp-introduces-bi.html
A Facebook group has also been established to provide further details of the campaign at: http://www.facebook.com/event.php?eid=171119629568034
Additional link to UK politicians in favour of interest rate caps:
www.rochdaleonline.co.uk/news-features/2/news-headlines/48580/local-mp-backs-better-credit-deal-for-every-consumer-in-heywood-and-middleton
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Background to the UK Government’s call for evidence and sections on interest caps on store credit and credit cards:
The Department for Business, Innovation and Skills has issued a call for evidence to inform its forthcoming review of consumer credit and insolvency rules. The review will take forward the Coalition Government's priorities to:
- tackle unfair bank charges;
- introduce a seven-day cooling off period for store cards;
- introduce a power for a regulator to cap interest rates on credit and store cards; and
- require credit card providers to make electronic statements available to enable consumers to judge whether an alternative credit card would provide better value for money.
However, in addition to these areas the call for evidence seeks views on what more can be done to ensure a fair deal in high cost credit markets, including whether the Competition Commission remedies in respect of home credit have been effective. The consultation also seeks evidence on debt solutions and the insolvency system, indicating that Government is seeking to ensure the 'right balance between the need of the debtor for debt relief and the needs of his/her creditors for repayment and whether a debtor is able - either on his/her own or with independent debt advice - to opt for the right procedure.' Options for consideration include a moratorium on recovery action to help people in temporary difficulties, and ensuring that there is greater consistency in the way that a debtors essential expenditure is calculated when working out how much they can afford to repay. The deadline for responses is 10th December 2010. Call for evidence are available from www.bis.gov.uk/Consultations/consumer-credit-call-for-evidence.
Extract from call for evidence: Page 17 - Questions 9 and 10
Interest rate cap on credit and store cards
41. Interest rates on credit and store cards have been rising in recent years, despite the record low base rate of interest, as shown in the table below. Since Q3 2008 the base rate has fallen by 4.5%, but the average rate on credit cards has risen by 1% and is now 18.7% APR. There are also increasing numbers of credit cards being marketed with very high interest rates of up to 60%. Store cards are averaging 26% APR, with some being as high as 29.9%, and they come with the added problem that they are often offered with the enticement of an initial discount by retail staff who may have little experience or knowledge of financial products. This can lead consumers to make poor decisions, signing up to agreements without giving full consideration to the potential drawbacks.
Table: Interest Rates for Unsecured Loans
Year Personal Loan* Overdraft Credit Cards Store Cards BoE Base Rate
2005 7.79 15.76 15.98 24.70 4.65
2006 7.20 16.40 16.31 24.48 4.65
2007 7.47 17.70 15.43 24.12 5.52
2008 8.70 17.79 15.36 23.88 4.63
2009 10.14 18.77 15.89 25.10 0.63
2010 10.76 18.93 16.55 25.60 0.5
42. In addition, consumers are limited in their ability to shop around for the best deals on credit and store cards by the relative complexity of the products, and the difficulty of comparing them in a like-for-like way.
43. A separate problem for some consumers is that the variable interest rates which apply to credit and store cards mean that the cost of existing borrowing can increase suddenly and in a way which the borrower cannot control. Risk-based re-pricing means that in some cases costs will rise because a consumer is in difficulty and therefore precisely when he can least afford it.
44. Earlier this year credit and store card companies signed up to a voluntary agreement to give consumers five new rights:
- right to repay (highest interest rate paid off first, minimum payments on new accounts cover at least interest, fees and charges plus 1% of principal)
- right to control (choose not to receive credit limit increases and ask for credit limit to be reduced, easier automated repayments)
- right to reject (more time to reject interest rate increases and pay off card, easier to reject credit limit increases)
- right to information (more information on minimum payments, interest rate increases and credit limit increases)
- right to compare (annual electronic statement)
45. The bulk of these new rights will be in place by the end of this year. The annual statement should be in place by the end of 2011.
46. In the coalition agreement, the Government committed itself to giving powers to regulators to define and ban excessive interest rates for credit and store cards. This reflects concern about the fact that interest rates on credit and store cards have risen while base rates have fallen and that very high rates are often targeted at those individuals whose credit rating is impaired.
47. On the other hand, the OFT review of high cost credit identified a number of difficulties with applying interest rate caps to the high cost credit sector -- in particular, it concluded that interest rate caps could reduce competition and make it more difficult for higher risk consumers to access credit at all.
48. Your responses on this issue will help the Coalition Government decide how to take forward its commitment.
Q.9 Should interest rates on credit and store cards be subject to a cap? If so, should this apply to all interest rates or only those which apply to existing borrowing?
Q.10 Are there any alternative measures which would reduce the scope for consumers to be exposed to higher interest rates on credit and store cards?
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Citizens Advice Scotland reveals credit and store cards as biggest cause of enquiries
Credit, store and charge card debts were the single biggest issue for Bureaus across Scotland with a total of 27,143 people seeking advice related to such debts. The Report also reveals:
- 25% of all issues brought to the Bureau were debt-related.
- Consumer debt made up 65% of all debt issues (68,806), way ahead of council tax debt (13,204) and housing debt (10,941).
- Non-card, unsecured debts were the second biggest debt issue after credit and store cards. 20,165 sought advice from the bureau citing non-card, unsecured debts.
- Overdrafts still remain a significant cause of borrowers needing advice from Citizens Advice, with 11,294 issues brought to the Bureau.
The full report can be found here: www.cas.org.uk/Resources/CAS/Migrated Resources/Documents/Advice in Scotland 0910 FINAL.pdf |
