More costly credit and more difficulty in obtaining credit for those with adverse credit histories could be the outcome of new rules coming into force on 31 October with changes to the Consumer Credit Act, warns consultant Datamonitor.
The view contrasts the Department of Trade and Industry's announcement the new rules will provide consumers with "a fairer system".
Consumer minister Gerry Sutcliffe is quoted by the departement as saying: "These reforms ensure that at every step from the moment a consumer considers using credit...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."
Datamonitor does not see it quite that way.
The consultant cites a tight implementation schedule, lack of adequate preparation and increased administration as factors that could even push smaller specialist lenders out of business.
Given the objectives of changes there is no little irony in the view that losing access to specialist lenders could then push consumers towards less protection as they are forced to use “more unscrupulous providers”.
Just 5% of lenders surveyed by Datamonitor said they were currently prepared for the new rules, while some 60% say the government has underestimated the compliance cost that comes with the new regime.
Credit card issuers say stricter rules on credit limit increases will “reduce the flexibility” of cards, and could actually force more consumers to go over their limits, thus incurring penalty charges.
Automatic increases in credit limits may be identified by the rules as a bad move on the part of lenders, but lenders themselves will not find it in their own interests to stimulate bad debt, the consultant adds.
The capping of early settlement fees means less income for lenders, but worse than that, smaller firms will find it extremely difficult to produce the amount of paperwork required to meet illustration requirements when offering credit. Again, consumers could be forced to look for credit from less regulated quarters.
Sub-prime lenders will also face the challenge of a wider interpretation of unfair lending, which will likely open them up to a greater number of legal challenges by consumers, in turn increasing the costs of credit.IFAonline
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