Early repayment penalties costing £330 million a year
23 June 2003
UK borrowers paid an extra £330 million last year in penalties for loan repayments, according to online bank Egg.
Egg is now calling for an end to the practice of penalising customers for paying off debts early and states that four out of five loan providers charge a penalty for early repayment.
Banks claim that loan set-up costs must be repaid, but Egg wants the Department of Trade and Industry to ban the practice as part of its proposals for the consumer credit market, due for publication later this year.
Mark Nancarrow, chief executive of Egg UK, said, 'Our report shows that these penalties act as a financial straightjacket, ensuring that discerning borrowers, wishing to reduce their overall level of indebtedness, remain captive.
'We hope that the DTI's long anticipated reforms of penalty charging - due to be published shortly - will finally abolish these heinous fees, creating a level playing field for all UK borrowers.'
The Egg survey revealed that around 70 per cent of consumers pay loans off early and three quarters would choose to if they unexpectedly got a cash windfall.
However, 65 per cent of respondents said they would be put off moving their loan to a more competitive provider if they would incur a financial penalty for doing so.
The vast majority of borrowers were also unaware they could be penalised for early repayment, Egg claims.