DTI scraps £25,000 credit ceiling

The £25,000 credit ceiling for borrowers set by the Consumer Credit Act has been scrapped by the Department of Trade and Industry.

Consumers will now receive increased legal protection when they borrow more than £25,000 through new proposals announced by consumer affairs minister Melanie Johnson.

The existing limit, set by the 1974 Act, will be removed following a consultation which found strong support for the change. With an increasing number of borrowers taking out loans of more than £25,000, particularly through second charges, rules covering APR payments, form and contents of agreements, credit advertising regulations, and credit &#39bargains&#39 will be extended to cover larger amounts.

Johnson says: “Removing the limit will ensure that, for the first time, almost all consumer borrowing is regulated. I want to see consumers receiving the same level of protection, whatever the size of loan they have taken out.

“This will be the first in a series of measures which will be introduced to target and tackle the scourge of loan sharks and ensure that consumers receive full and effective protection against their practices, whatever the value of the loan.”

Keith Heron, chief executive of the National Association of Commercial Finance Brokers, says: “This is going to be a major change and I am very surprised. We expected an increase to the ceiling limit for regulation but not for its complete removal. Brokers and borrowers will really have to think about the implications of this step and whether it applies to all sectors of the market.”