By Marcus Leach

The Department for Business, Innovation and Skills (BIS) and HM Treasury have today (Monday) published their 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 increase transparency and help consumers make better financial decisions when borrowing money and deals specifically with:

- unarranged overdraft 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.

Responding to consumer concerns about the lack of control and transparency over bank charges, the Government has driven forward a voluntary agreement which will apply to all full-facility current accounts offered by the major banks.

Under the new agreement, over 85 per cent of personal current account customers will benefit from measures to make charges for unarranged overdrafts clearer, fairer and more manageable. This includes annual statements so that customers can see how much their account costs over the year.

Consumers will have the option to receive alerts when their balance is low so that they can take action to avoid a charge; and they will no longer be charged for going over their limit by a small amount.

Balance alerts will be available from March 2012, with full implementation of the other measures by March 2013 at the latest.

"We received a fantastic response to the review which has been central to our vision to give consumers the tools they need to make well-informed decisions when managing their finances," Consumer Minister Edward Davey said.

“The package of measures we have set out will encourage consumers to make better credit decisions and strengthen protection where necessary - particularly for the most vulnerable.

“We are committed to responsible lending and will continue working with the industry to improve consumer protections, particularly in the high cost credit market, where we are speaking to the industry to ensure that additional consumer protections are included in codes of practice."

Financial Secretary to the Treasury Mark Hoban said:

“The public told us they felt overdraft charges were unclear, and that it was unfair to be penalised for only going over your limit by a few pounds. They also told us that consumers can be tempted into taking out a store card by being offered a discount at the till.

“We’ve listened to these concerns and have worked with industry to develop a strong package of measures in response. The changes made as part of this review will empower consumers to make the right decisions for them and encourage responsible lending practices.”

And from September 2013 a new guaranteed switching service within seven days will give customers the confidence to switch accounts quickly, safely and without hassle. This will mean that consumers can make sure that they are getting a good deal from their bank.

On store cards, respondents to the Review were most concerned about customers being 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 this practice as well as introducing other measures to improve the way store cards are offered, including a good practice training scheme and a ban on direct commission for sales staff.

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 outcome from the review was the real concerns on the high cost credit market, in particular its effect on vulnerable people. The Government is today 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 voluntary package of measures announced in the Government response to the review, including on bank charges and store cards, will deliver real benefits for consumers far more quickly than waiting for legislation. This is in line with the Coalition principles of freedom, fairness and responsibility.

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