Consumer minister Gerry Sutcliffe yesterday announced that all consumers will get clear and detailed information about their credit agreements from lenders before they sign up - enabling them to shop around for the best deal.
Sutcliffe also said excessive charges for settling an agreement early will be replaced with a new fairer system.
The move is the first set of regulations in the government's shake-up of the consumer credit market, aimed at increasing transparency and improving consumer protection while minimising the impact on business.
The regulations are designed to tighten up credit advertising so consumers will be better able to compare products; 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 all the other financial information.
The regulations will also introduce a signature box for consumers to sign if they are purchasing any additional insurance products, such as payment protection plans, on credit. This will work to highlight any extra costs.
Sutcliffe says: “This is all about transparency, enabling and empowering consumers to make informed choices. Credit is an integral part of our lives. If used properly it can be a useful tool. But lending and borrowing must be clear, open and responsible.
“These reforms ensure that at every step from the moment a consumer considers using credit to when they sign on the dotted line, right through to when the agreement ends, they will have the fullest information possible about how much they need to pay and for how long, enabling business and consumers to make responsible lending and borrowing decisions.”
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.
The lender will also have to set out three representative examples of how much it would cost a consumer to settle a loan early, if the lender intends to charge.