Hewitt - no credit cap in new consumer laws
08 December 2003
The Trade and Industry Secretary has explained why the Government has stopped short of capping interest rates on financial products in its planned changes to credit laws.
Patricia Hewitt's comments come as the consumer credit proposals are due to be published today. The most fundamental change is likely to be the requirement for lenders' information to be more transparent.
A recent MORI poll for the DTI has highlighted the need for greater clarity, with more than half of the respondents claiming that credit agreements were hard to understand, while around 80% admitted they would like more information.
Ms. Hewitt told BBC One's 'Breakfast': "What we're worried about is if we do put a cap on interest rates we'll actually find an awful lot of interest rates moving up to that maximum level.'
'And another problem is that, depending on exactly where you set the maximum, there's a real danger that the people who find it difficult to get credit because of their past borrowing record [will] end up not being able to borrow at all from a legitimate lender and we'll effectively force them into the hands of the loan sharks - and of course that's the opposite of what we want to do.'
Ms. Hewitt went on to explain how credit agreements would be made easier to understand: 'Most people don't understand what they're paying - don't even read the small print - so what we're going to do is get rid of the small print, require what the Americans call an honesty box, so that there is plain, big print information.'
She also claimed that it was "quite impossible to compare" credit deals with current practices, which was why the planned legislation would ensure that all interest charges were calculated on the same basis.
The Trade and Industry Secretary refused to concede, however, that people in the UK were borrowing too much.
'We've got a very strong economy, people are earning more, they own more, and because interest rates are practically as low as they have been since 1955 it's not surprising that people are borrowing more because they can afford to.'
'I think credit is hugely useful for households' she continued, 'and for most people it's a very important part of how they organise their finances.'
'I don't think it's up to government to tell people how much they should borrow; it's our job to protect consumers, make sure they've got the information, and protect the most vulnerable against the utterly extortionate loan sharks who rip them off in the most disgusting way.'
Ms. Hewitt admitted, however, that she did not own a credit card herself in order to 'avoid those interest payments'.
According to a report from Datamonitor, British consumers owed £158bn on unsecured lending at the start of this year.
The DTI has estimated that the average household could save £400 a year on servicing that debt if people changed to credit cards with the best possible interest rates.