From 1st February, 2011 the way that financial services companies market and advertise financial products in the UK will fundamentally change.  The European Union Consumer Credit Directive comes into force on 1st February and is set to have a big impact – positively and negatively – on consumers.

Positive changes for consumers

The Consumer Credit Directive is designed to make it easier for consumers to compare credit products within the European Union.  From February, there will be changed to how companies display information about deals such as loans and credit cards.

Advertisements and published rates must, from February, contain a ‘representative example’.  This will include an example credit amount, the borrowing rate as well as any additional fees and charges.  It must also contain a ‘representative APR’ to make it easier for consumers to compare similar products.

In addition, from 1st February consumers will have the option to cancel a credit card or loan agreement within 14 days of signing up.  Borrowers will also be able to make partial early repayments to their debts at any time, although it is possible that they may have still to pay a fee of up to 1 per cent of the amount that they are repaying early.

Fewer people will get the advertised rate

Whilst the changes are designed to improve transparency, there are some drawbacks to the new regulations.

Presently, when consumers compare credit, they are shown a ‘typical APR’.  This is the rate offered to at least 66 per cent of successful applicants.  However, once the Consumer Credit Directive is implemented, this will be preplaced by a ‘representative APR’ – which must be offered to just 51 per cent of accepted borrowers.  This means that fewer people will actually get the advertised rate.

Lending such as mortgages and secured loans will still be based on ‘typical APRs’.

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