Beefed-up protection for borrowers
This week saw what has been billed the biggest shake-up in consumer law for 30 years with the implementation of the Consumer Credit Act. Under the act, millions of borrowers will receive greater protection against “rip-off” lenders.
This week saw what has been billed the biggest shake-up in consumer law for 30 years with the implementation of the Consumer Credit Act.
Under the act, millions of borrowers will receive greater protection against “rip-off” lenders.
It extends the scope of regulation to cover the work of all licensed lenders, including pawnbrokers and firms offering car loans and store cards.
As a result, customers will now be able to challenge unfair credit agreements in court and take grievances to the Financial Ombudsman Service (FOS).
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The new law extends the work of the service to cover all licensed lenders, instead of the 70pc of lending activity that previously fell under its remit.
Customers of up to 80,000 businesses will be covered for the first time as a result of the changes.
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If the ombudsman rules that a firm has acted irresponsibly in giving credit or advice, it can order the lender to pay compensation, repay charges or interest or even write off debt.
The act also introduces an “unfair relationships” test, which will enable consumers to mount legal challenges against rogue lenders.
“The Consumer CreditAct beefs up protection for borrowers, especially those with debt problems,” said consumer minister Ian McCartney.
“It helps them challenge unfairness and protects them from dishonest lenders who try to rip them off.
“Our aim is a market that protects all consumers and is fair to honest lenders, leaving those without scruples with nowhere to hide.”
Teresa Perchard, director of policy at Citizens Advice, said: “This gives consumers much more protection, which Citizens Advice has pushed hard for.
“The new measures mean that finally people who have been mis-sold loans or financial products or charged unfairly will have a proper form of redress.
“This is also good news for businesses who do treat consumers fairly, as the measures will go a long way to reducing the bad practice we see and sends a very clear message to businesses that bad practice will not be tolerated.”
Meanwhile, home reversion plans now fall under the remit of the Financial Services Authority (FSA).
A home reversion plan lets a home-owner free up equity from his or her property in return for giving an investment company a stake in its value - the company's stake often comes from the estate of the home-owner after death.
It brings reversion plans in line with mortgages and equity release plans, with providers having to offer clear and consistent information about their services and products.
The act came into force yesterday - the first day of the new tax year.
For the ombudsman to be able to help, complaints about consumer credit must relate to an event after April 6, and consumers need to have raised the problem first with the business concerned.