Curbing banks' credit binge

THE arrival of a new broom in charge of consumer affairs at the Department of Trade may not be entirely welcome to all of Britain's big banks. Minister Gerry Sutcliffe is thought to be readying an early overhaul of the nation's consumer credit laws, untouched for three decades.

In that period the amount of money borrowed on credit cards has ballooned from £32m (at today's prices) to an astonishing £49bn. The government wants to bring down the curtain on what is known in the trade as the 'Rule of 78'. This essentially allows lenders to penalise borrowers when they pay back loans early.

This is a nice little earner for some of the Big Four clearing banks. Among them Lloyds TSB, NatWest (now part of RBS) and HSBC are thought to pick up between £40m and £60m of profits a year from it. That looks like small beer in relation to the huge profits banks will be reporting in early August. But it is an example of government tackling the tendency of the banks to impose hidden charges on customers when they think they can get away with it.

There may be disappointment that the DTI is not going further. Proposals to clamp down on loan sharks are always eye-catching. But the 'fair trading' officers charged with this job lack the staff and technology to track offenders.

There are also questions as to whether the authorities want to tackle other problems with consumer credit law. With so much refinancing and equity withdrawal in the mortgage market, it is time to end the artificial distinction between loans below £25,000, regulated under the Consumer Credit Act, and those above that count as mortgages and are policed by the FSA.

This is a ridiculous situation that often counts against the consumer who has to pay a higher rate for smaller loans. Similarly, the DTI should almost certainly do something to rein in the usurious rates charged by department stores - many of whom farm out business to GE Capital and HFC Bank.

While the government is at it, perhaps it should look at the practice of 'gapping', widely prevalent when interest rates fall. Lloyds TSB and RBS are among those banks that immediately reduced savings rates when the Bank of England cut base rate to 3.5% on July 10, but they will not pass on lower mortgage charges until August 1 or later. That adds a further £10m or so to profits.

No wonder the public remains so wary of the High Street banks.

Political factor

WE may be some way from Tony Blair's resignation. But for the first time since the Prime Minister took office in May 1997, political concerns are starting to overwhelm economic fundamentals on financial markets.

Despite slippage of output in Britain this year, the economy will grow at 1.8%. Contrast this with the Eurozone, where expansion at 0.6% will trail even behind Japan. Germany lags the richest nations with growth of just 0.1%.

Despite the UK's superior outlook, concerns about what a post-Blair era may mean have rocked shares and the pound. Sterling fell to a three-month low against the dollar in Europe at just above $1.57, before bouncing back to $1.60 in New York. It also picked up against the euro, recouping an initial fall. Nothing scares the markets like uncertainty, as people learned in the run-up to the Iraq war.

A prolonged political crisis in London, as the noose tightens on Blair and his aides, will mean an unsettled period for shares and the pound.

Eurotrash

RESULTS from the quoted Channel Tunnel operator Eurotunnel and the separately- owned train operator Eurostar are extremely uninspiring. Eurotunnel is having trouble meeting its debt repayment targets, Eurostar is losing passengers by the shedload.

British Airways may give Eurostar a fillip with its ticketing difficulties at Heathrow. It could also help itself. The economy class carriages (on which I travelled to Brussels at the weekend) are a disgrace with filthy carpets, dirty seats - many without fresh headrest covers - and toilets that could grace Jeffrey Archer's prison diary.

If it is to have any chance of competing with cut-price airlines, Eurostar must clean up its act.