London, Dec. 9: Information about credit cards and loans will carry “wealth warnings”, similar to the messages on cigarette packets, in the first major overhaul of the credit laws for nearly 30 years in Britain.
After a two-year review, Patricia Hewitt, the trade and industry secretary, unveiled her plans yesterday to try to stop millions of Britons slipping further into a culture of debt and inadequate long-term savings.
One of the key objectives is to make all literature, including advertising, about credit cards and loans “clearer and more transparent” to help people avoid taking on levels of debt that they cannot afford.
‘Wealth warnings” such as: “Missing payments will have severe consequences and may make obtaining credit more difficult in the future” will be carried on all credit agreements.
The interest rate, known as the APR (annual percentage rate), used in advertisements will have to be “more prominent” and twice the size of any other financial information in the advertisement.
Rather than boast about 0 per cent offers that are rarely available in reality, credit card companies will only be allowed to advertise the highest rate of APR that two thirds of customers can be expected to pay. The changes were announced at a time of increasing concern about the level of debt that people are prepared to take on, with many refusing to consider seriously whether they can afford it.
In the early 1970s, a few years after credit cards were first introduced in this country, just £32 million was owed on credit cards. Today this figure is nearly £50 billion, or £1,140 for each adult. If the amount owed on credit cards, overdrafts, store cards and loans is added up, the average amount owed by each household is around £11,300, nearly half the average annual salary.
One example given in the White Paper, published yesterday, is Mrs J who took out a secured loan of £10,800 in 1987 which charged an APR of 29.8 per cent. Over the 15-year life of the loan, she repaid £52,200 but, as she had fallen into arrears, she still owed £118,600 due to the high level of interest charged.