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The Department of Trade and Industry’s Loan Rules

As part of the Consumer Credit Bill the Department of Trade and Industry is changing it rules regarding loans. The changes are designed to make loan agreements clearer and easier to understand for consumers. The information should make shopping around for loans a lot easier.

Information such as the total amount repayable and the annual percentage rate must be clearly displayed. This makes comparing different options a lot easier, for example, comparing low repayments over a long time, versus higher repayments over a shorter period.

Consumer advocacy groups have welcomed the new changes. The changes should lead to more informed borrowing decisions. Particularly for those facing financial difficulty, finding the right information fast for example on debt consolidation loans, can be vital. It will also be more difficult for dishonest lenders to sell expensive or hidden charges to unsuspecting borrowers.

All hidden or non-obvious costs must be bundled into the APR so they cannot be hidden. This should reduce payment problems, and bankruptcies for those living close to the financial edge. Consumers who are informed on all the costs will make wiser decisions and are less likely to unwittingly fall into trouble.

What information must be provided?

All of the most important facts must be clearly made visible to the consumer.

  • The total amount borrowed
  • The total amount to be repaid
  • Payment amounts and frequency
  • APR (annual percentage rate)
  • Penalties and cost thereof
  • Early settlement charges, if any

Before signing a loan, all the above information must be provided clearly. All add-ons, such as payment protection insurance, must be clearly indicated and their full cost displayed. They must be listed separately to the loan and signed for separately. This should reduce the case where add-ons are slipped in without the consumer being aware of them, as is unfortunately common practice for many lenders.

Early termination penalties are also constrained by the new rules. The lender will be allowed to pass on administrative costs to the consumer who repays the loan early, but there are standard methods for calculating these and they therefore cannot be excessive.

Concerns have been voiced from lenders and others, that the new rules will lead to increased interest rates, as the lenders will have to incur the costs of complying with the new rules. Some also feared that smaller lenders will not be able to comply with the new rules.
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