New Rights for Borrowers
People who borrow money get two important new rights this month. First, they will be able to take disputes to the Financial Ombudsman Service (FOS). Second, they will be able to go to court to challenge credit deals they think are ‘unfair’. The new rights are part of the Consumer Credit Act 2006.
Until now the FOS could only look at complaints about loans or other credit deals done with the 25,000 firms which are regulated directly by the Financial Services Authority. They include banks, insurers, financial advisers, and mortgage companies. But most deals were excluded. If you thought you had been treated unfairly when you bought a car on hire purchase or borrowed money from a shop to buy a sofa or a kitchen you could not complain to the FOS. Now you can. In fact any firm which has a consumer credit licence is now covered – and they can include dentists or gyms where there is a payment plan. It also covers credit reference agencies, pawnbrokers and agents who find us loans – even debt collectors pursuing a consumer debt.
Before going to the FOS you must have taken up the complaint with the company which must now have a proper complaints procedure in place. If that does not produce the result you want you can go to the Ombudsman. He will be able to order refunds or compensation or even write off the whole debt. The new complaints system will be free to consumers. But firms will have to pay extra, probably around £150 a year, when they renew their credit licence. Each case taken to the FOS will cost the firm £400 win or lose (though the first two in any year for any firm are free).
The other change is a bit of a fudge. The Government was under some pressure from campaigners to set a legal upper limit on the interest rate which a lender could charge. Some well known firms who collect payments door to door routinely charge customers 177% APR on short term loans, sometimes a lot more. But the Government decided not to put a cap on interest rates. Instead, borrowers can now go to court if they feel any part of the credit agreement – including the interest rate – creates an unfair relationship between them and the lender. The unfairness can cover the terms of the agreement, the way in which it is operated, or anything the lender does, or does not, do. Exactly what all that means will no doubt be the subject of many test cases taken by consumer organisations.
Both changes only cover credit deals taken out from 6 April 2007. But in twelve months they will be made retrospective and cover all credit deals that are still ongoing.
Paul Lewis
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