Review of consumer credit and personal insolvency

21 November 2011

Following the publication of a summary of responses on 19 July 2011, the Department for Business, Innovation and Skills and HM Treasury have today published their formal response to the consumer credit elements of the Government’s Review of Consumer Credit and Personal Insolvency.

The response builds on a number of Coalition commitments to help consumers make better financial decisions when borrowing money and deals specifically with:

unfair bank charges;
introductory discounts when taking out a store card;
interest rate caps on credit and store cards;
and other consumer credit issues, including high cost credit.

On unfair bank charges, the Government has worked with industry to address consumer concerns about lack of control and transparency. The response announces additional commitments that will apply across every full-facility current account offered by the major banks, covering 85 per cent of consumers.

Consumers will be able to receive an alert from their bank when their balance is low and, in some cases, when they are about to go into an unarranged overdraft; they will know by what time they need to make a payment into their account to avoid charges; and they will no longer be charged for small unarranged overdrafts. Balance alerts will be available from March 2012, with full implementation of the other measures by March 2013 at the latest

On store cards, respondents to the Review were most concerned about the ease with which customers are tempted into expensive credit by retailers offering discounts on their purchases at the time they take out a store card. Following negotiations with the Government, industry has agreed to end the practice of introductory discounts as well as introducing other measures to improve the way store cards are offered

The Government will not be introducing a cap on interest rates on credit and store cards. Following the review, the evidence showed that a cap would not be in the best interest of consumers as pricing some consumers out of the market could force individuals to seek unregulated or high cost credit.

Another issue brought to light by the review was the real concern about the high cost credit market, in particular its effect on vulnerable people. The Government is announcing that Bristol University's Personal Finance Research Centre (PFRC) has been appointed to carry out research into the impact of introducing a variable cap on the total cost of high cost credit.

The Government has also started negotiations with industry to introduce improved consumer protections in codes of practice for payday lenders and other instant credit providers. In addition, the Government is working to improve access to credit unions which can provide a real alternative to high cost credit.
The Government response, along with the call for evidence and the summary of responses can be found on the BIS website (opens in new browser window).

Review of consumer credit and personal insolvency

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