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Borrowing: Interest Rates

Volume 476: debated on Monday 2 June 2008

To ask the Secretary of State for Business, Enterprise and Regulatory Reform what steps he is taking to protect consumers who borrow on terms that assert fixed rates of interest from contractual provisions that enable the interest rates to which they are liable to vary. (207036)

The Government have introduced a number of measures to promote greater transparency in the consumer credit market so that, before they enter into a credit agreement, consumers have the information they need to make an informed choice and are aware of the terms and conditions of the agreement.

The Consumer Credit (Disclosure of Information) Regulations 2004 specify the information which must be disclosed to borrowers before a regulated consumer credit agreement is made and they specify the manner in which the information must be disclosed. Borrowers should therefore be fully aware of the terms, such as the type of interest rate applicable, before they enter into any agreement.

In addition, the Consumer Credit Directive, which, it seems likely, will be due to be implemented by October 2010, will include a requirement for lenders to provide borrowers with a key standard information sheet before entering into a contract.

Furthermore, the Consumer Credit Act 2006 strengthens consumer rights, by enabling consumers to challenge unfair lending agreements before the courts. Courts are able to consider the entirety of a relationship between debtors and creditors to determine whether any of the circumstances arising from an agreement are unfair to the debtor. The Act also introduces an alternative dispute resolution scheme under which consumers have access to a free and independent means of resolving disputes with their lenders by taking their case to the Financial Ombudsman Service, rather than having to go through the courts.

Further protection is provided through the Consumer Protection from Unfair Trading Regulations, which come into force on 26 May. These introduce a general prohibition on the use of unfair commercial practices that harm consumers' economic interests. Unfair commercial practices will include failure to inform consumers of material information they need to know to make informed purchasing decisions. Any concerns that the practices of traders may infringe this prohibition may be brought to the attention of OFT or Trading Standards.

In addition, the Unfair Terms in Consumer Contracts Regulations enable consumers to challenge any term which has not been individually negotiated in a consumer contract, where that term causes a significant imbalance in the rights and obligations of the parties to the detriment of the consumer. If the court agrees that the term is unfair, it will not be binding on the consumer.