From the 1st Feb 2011 the latest changes as a result of the Consumer Credit Directive adopted in the UK in 2008 will mean big changes when you apply for credit and you probably know very little or nothing about them. Here we explain what the new regulations will mean for you and it’s not all good news.
One of the big changes being introduced across Europe is that banks and credit card companies have to advertise a ‘representative’ interest rate that at least 51 per cent of accepted applicants are given for unsecured credit, for example, credit cards and unsecured loans. Currently companies are required to advertise a ’typical’ interest rate that at least two thirds (66 per cent) of accepted applicants get or lower. The new regulations disappointingly mean that almost half of the people accepted for the loan or credit card will get a higher rate than the one advertised. Under the old rules this figure was just a third.
Many people aren’t aware that you may not get the rate advertised until an application has been submitted and a decision has been made. By this point a credit search has been recorded and too many searches in a short time can affect your ability to get credit elsewhere. This can make it difficult to shop around for the best rate.
Lenders will also have to show a ‘representative example’ whenever they quote a ‘representative’ interest rate. With unsecured loans this will include details of the interest rate, any fees and charges, the length of the loan, the total amount payable and the monthly repayment.
To complicate things if you apply for a secured loan lenders will still advertise ‘typical’ rates. The way that overdrafts are advertised using ‘EAR’s will also remain unchanged.
Better Protection for Larger Transactions
If you buy something with a credit card or other credit costing between £100 and £30,000 and something goes wrong with the purchase, for example, the goods are faulty or aren’t delivered, you can claim your money back from the lender, or the retailer using Section 75 of the Consumer Credit Act. The new regulations mean that goods or services bought on credit (but not typically credit cards) that cost more than £30,000 and up to £60,260 may now also be protected.
Information in advance – You must be given information about the credit agreement you are agreeing to before you apply and be able to take it away and use it to shop around for a better deal.
Cooling off period – You can cancel a credit agreement within 14 days, or later, once you have received a copy of the agreement or notification of the credit limit on a credit card. However you will have to repay the money borrowed, plus an interest charge for each day until it is repaid.
Make early part repayments – As well as being able to pay off the full amount of the credit in one go you will be able to make partial repayments – lenders are allowed to charge no more than 1 per cent or 0.5 per cent of the amount repaid early.
Information about Credit Reference Agencies - If an application is turned down because of information from a credit reference agency the lender has to tell you and also disclose which agency they used.