MPs support strengthening of consumer credit bill

29.06.2005 Government must not miss this opportunity, says Nationwide
Nationwide Building Society has welcomed the support of MPs from all parties for the inclusion of key measures it has championed to stamp out bad practice and irresponsible lending in the Consumer Credit Bill. The Bill will go before a House of Commons Committee for detailed consideration next week.

Nationwide has called for the Bill to: Outlaw unfair orders of payment on credit cards, which allow card providers to allocate partial payments to balances at the lowest rate of interest, leaving higher-interest items such as purchases and cash advances to continue accruing interest at significantly higher rates Require credit card providers issuing ‘convenience’ cheques to include a clear and transparent ‘health warning’ that covers interest rates, order of payments and consumer protection. Insist that lenders who advertise typical rates or use risk-based pricing obtain the explicit agreement of the consumer to the rate they are actually being offered before proceeding with the application. Tackle the barriers to data sharing to encourage responsible lending, so that lenders are incentivised to treat customers fairly and lend prudently. Labour MP Anne Snelgrove, who will sit on the Committee to scrutinise the Bill, said in the House of Commons “The unfair order of payment on credit cards… is a problem in my constituency and many others, when constituents with 0 per cent credit cards do not know that the cheapest debt is paid off first. They can therefore rack up extra debts without realising it. That has led to credit card providers making an estimated £500 million extra profit a year.”
Liberal Democrat Shadow DTI Secretary Norman Lamb MP echoed her concerns on orders of payment, saying “Some consumers do not understand that they are paying off the 0 per cent debt that they have carried over from another credit card rather than subsequent purchases, which are subject to a rate of interest.”
On the subject of convenience cheques, Conservative spokesman Charles Hendry MP said, “What is not made clear to customers is that spending on those cheques is usually at a higher rate of interest than that charged for normal use of the card, with a shorter interest-free period or none at all and without the protection that applies to credit card spending under section 75.”
Following the MPs’ comments, Stuart Bernau, Nationwide’s executive director, said: “We support the broad thrust of the Bill, but at present it just does not go far enough. The Government has a good opportunity here to tackle bad practice and make a real difference for consumers. It would be a great shame if this opportunity were missed.
"Some practices, like applying payments to the cheapest debt first, remain unfair and can only be to the detriment of the consumer. Any debt counsellor worth their salt would tell you to pay off your most expensive debt first, so why should credit card providers be allowed to ignore this principle?”
Notes:
The Consumer Credit Bill was introduced to Parliament on 18 May and debated in the House of Commons on 9 June. From next week, a special Committee of MPs will be considering the Bill in detail. Quotes from Anne Snelgrove MP, Norman Lamb MP and Charles Hendry MP are taken from Hansard, vol 434, cols 1405-1489 final stages because Parliament was dissolved for the General Election. The Bill follows the 2003 Consumer Credit White Paper, and is the culmination of a three-year review of consumer credit law. More information about the Consumer Credit Bill can be found on the Department of Trade and Industry website at http://www.dti.gov.uk Nationwide is the only major credit card provider to apply payments to the most expensive debt first across all its credit cards. Nationwide offers one rate for personal loans, making it the only high street lender not to use misleading ‘typical’ rates. Nationwide does not send out ‘convenience’ cheques to encourage customers to increase their credit balances without explaining the true cost. Nationwide believes this is the fairest way to treat its customers. 22 Jun 2005