Consumer minister Gerry Sutcliffe announced last week that all consumers must receive clear and detailed information about their credit agreements from lenders before they sign up – enabling them to shop around for the best deals.
Sutcliffe also said excessive charges for settling an agreement early will be replaced with a fairer system.
The move is the first set of regulations in the government's intended shake-up of the consumer credit market, aimed at increasing transparency and improving consumer protection whilst minimising the impact on business.
The regulations are designed to tighten up credit advertising so that consumers will be better able to compare products and will introduce a standard way of calculating the annual percentage rate for credit cards. When an APR appears in an advert it will always have to be more prominent than other financial information.
Sutcliffe says: “This is all about transparency, enabling and empowering consumers to make informed choices.”
The changes will apply to credit advertisements from October 31 2004, and to all new agreements from May 2005.
The rule setting out what a lender can charge when an agreement is settled early will apply to existing agreements of up to 10 years from May 2007. For loans over 10 years it will apply from May 2010.
But the Consumers' Association has warned that the rules may not go far enough to address what it terms as confusion in the credit marketplace.