Personal Debt Targeted in New White Paper

Proposals to Ban Credit Card Cheques and Review Payday Loans

Jul 4, 2009

Debt statistics released by Credit Action, an independent debt charity, make grim reading, with UK personal debt increasing by 1.4% in the last year to £17.9 billion.

In an attempt to reduce the high level of personal debt in the UK, a new government white paper from the Department for Business Innovation and Skills entitled “A Better Deal for Consumers” has set out a range of proposals which are designed to tackle the problem.

Credit Card Cheques

The proposed measures, calculated to support responsible lending and borrowing, include a complete ban on unsolicited credit card cheques which are a way of paying for goods or services when a credit card is not acceptable.

Credit card companies send out millions of credit card cheques. In 2008, 280 million say the BBC, although the vast majority were not requested and remained unused. The Office of Fair Trading estimate credit card cheques cost people £57 million in interest charges each year.

Credit Card Debt

The White Paper also includes proposals to reform the regulations surrounding credit and store cards. For example new requirements will be introduced to force lenders to check people’s creditworthiness before they borrow and ensure that consumers understand the consequences of failure to pay.

The review of credit card legislation will consider whether restrictions on interest rate increases on existing debts should be considered and essentially, whether minimum payment rates should be raised. The government is also keen to see an end to borrower’s credit limits being increased without prior agreement.

Concerned about the high rates of interest levied on some types of loan, the government has asked the Office of Fair Trading (OFT) to carry out a review of the markets of high cost credit, typically those above 50%. The review would certainly include payday loans and doorstep lending.

The OFT will find many organisations with interest rates above 50%, it’s not unusual for example to find payday loan rates at over 1000% APR.

Debtor’s Guide

Consumer education is an important part of the White Paper and to that end a new self-help tool kit has been developed by the Money Advice Trust, and a Debtor’s Guide comes from the Insolvency Service. The appointment of a new Consumer Advocate with responsibility for consumer education is also on the agenda.

Debt Help

The Money Advice Trust who estimate that over four million people will need debt advice during 2009 has said their new tool kit: “Would save about three hours of precious advice time per client (i.e. reducing an average five hour input from a face to face money adviser to a little over 90 minutes)."

The Office of Fair Trading hope to produce their interim findings by the end of 2009, with a final report appearing in the spring of the following year.

Sources:

Department for Business Innovation and Skills, Government action to secure a better deal for consumers, 2 July 2009

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