Rip-off lenders are on borrowed time

A CRACKDOWN on 'rip-off' credit card deals and on other lenders charging extortionate interest rates will be unveiled next month.

Ministers are claiming that they will 'declare war' on the various ruses, particularly in the small print of card and loan agreements, used to cover up the true cost of borrowing.

The new measures will make sure borrowers are given clear information about what they are letting themselves in for before they sign on the dotted line.

A shake-up in consumer credit laws is long overdue, with personal borrowing at an all-time high.

Outstanding credit card and personal loan balances hit £167bn in August.

And at a Commons committee hearing last week the chief executive of Barclays Bank, Matthew Barrett, admitted he would never borrow money on a credit card because it was too expensive.

In a revamp of the 30-year-old Consumer Credit Act, lenders will have to spell out the penalties for late payments on loans, explain exactly how interest is charged, how special interest rate deals work, and what are the charges for early repayment of loans.

Ministers also want credit agreements to be standardised. This would enable consumers to make proper comparisons between rival lenders, which could lead to them making substantial savings on charges.

At present, paperwork can be so complex that it is difficult to find the best deals.

The leading banks have 'honesty box' on their credit card advertisements in response to public anger over 'rip-off' charges.

The move amounts to an admission that millions of customers are confused over what they will end up paying.

Barclaycard and other big names have agreed the wording of a statement that will spell out all penalty charges, fees and interest rates.

Now all banks and lenders will have to follow suit.

Consumers who pay back their loans early will receive greater protection against unfair penalties. Some 70% of loans are settled early.

There could also be a lifeline for families who risk losing their homes after becoming trapped in high-cost second mortgages from debt consolidation firms.

The Office of Fair Trading will be given extra powers and told to take a much more active role in hunting down loan sharks, fining them or removing their licence to trade.

The aim is to put a stop to irresponsible-lending to families regardless of whether they can afford repayments.

Some borrowers have been charged as much as 1,800% annual interest on personal loans, while 40% is common for those who use alternative lenders after being turned down by High Street banks.

Call centres are picking out wealthier customers for special treatment, using technology to push them to the front of the queue. While many callers are left hanging on the line, the clients perceived to be the best prospects are immediately connected to operators who can offer them discounts and better deals, according to a study by market analysts Datamonitor.