The Treasury Select Committee's second report into consumer credit has outlined specific changes that would radically alter the look and feel of credit agreements.
A "Summary Box", currently being proposed as a voluntary response from industry, would be put on a statutory footing if the government gets is way.
Such a box describing the key elements of the credit agreement would be a good basis on which to develop proposals for pre-contract information, the TSC says.
It intends to test sample pre-contract information and illustrative agreements on consumers before coming to a conclusion on the best way to present such information.
Other changes that will affect the form and function of agreements include forcing lenders to explain the implications of just making minimum payments each month, and applying a common method of calculating APR.
APR is something that would likely be included in the Summary Box to improve transparency for consumers, the TSC report suggests.
Transparency will also dictate new advertising rules, requiring advertised “typical interest rates” to be available to at least 66% of borrowers. If the lower rate is not given, consumers should in future expect an explanation from their lender.
Consumers can also expect full information on all fees up front, or, where such information is not given up front, information explaining the methodology used to calculate future charges.IFAonline
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