New rules impact credit card lenders


New rules have come into force that should make it easier for consumers to compare credit cards and personal loans. As of February 1, 2011, lenders must now adhere to a number of regulations concerning the advertising of APRs, the way in which they assess applicants' ability to repay their debts, and the timing and quality of the information they give to customers. Here are the main ways in which the EU Consumer Credit Directive will affect lenders and borrowers:


Advertising and APRs
Lenders and price comparison sites must now provide a 'representative APR,' showing the rate offered to at least 51% of applicants. Previously, UK lenders have provided a 'typical' APR likely to be offered to 66% of applicants. But the new measure should be beneficial to consumers in some other European countries that did not have this level of protection before.

Creditworthiness and adequate explanations
Borrowers' creditworthiness must be checked before offering a credit card or increasing their credit limit. The lender must also provide an adequate explanation of the proposed credit agreement, including the cost and consequences of missing payments.

Pre-contractual information and agreements
Information on the proposed credit agreement should be provided to the applicant in a timely fashion so that they can consider their situation and compare credit cards again if wished. This information should be given in a standard format so that deals can be compared with ease.

Right of withdrawal
After signing a contract for a new credit card, borrowers now have 14 days to change their mind and cancel the card. They must then repay any money they have borrowed, along with any interest that may have accrued.

Consumer minister Edward Davey said that the new rules should help to foster "a culture of responsible lending". He added: "With new legal rights for consumers and greater responsibility for lenders, consumers will be better able to take charge of their money."

See related: Card users to transfer £2.8billion in 2011; Did card reform not go far enough?

Published: 8 February 2011