It threatened to be like giving the loan sharks an arm and a leg: Government proposals for implementing the Consumer Credit Directive that would have made buying on credit such hassle that many customers would have been driven away from established retail lenders to the less scrupulous, “unregulated” sector.

Take a typical low-income mum using a catalogue to buy school uniform on instalments. She’s been operating the account happily for years but would suddenly have found herself facing detailed questions about her household’s disposable income and expenditure – information she’d struggle to gather.

Then she’d be given a verbal “explanation” and probed to see if she understood it all. There’s a strong likelihood she’d have given up and turned to a lender that doesn’t bother with the legal niceties. 

And remember the average value of a loan from one of our members is under £400.

Stopping people getting into more debt than they can afford is sensible. The lending environment’s changed and we’re all more aware of the need to avoid unmanageable
debts being run up.

But new regulations must be proportionate and respect customers’ intelligence. That’s what we’ve been telling the business department and, I’m pleased to say, it has listened.

The version due to become UK law next June looks a lot better. In most situations, retailers should be able to continue using standard credit reference checks rather than having the full burden of customer education dumped on them.  

But that’s only round one to us. Next in the ring, the Office of Fair Trading’s (OFT) new Irresponsible Lending Guidance. This is due out just before the new consumer credit rules – so much for joined-up government – and threatens to go well beyond what the law actually requires. 

It proposes lenders should assess the suitability of the product for that consumer – so if someone asks for a store card the retailer is supposed to gauge whether another option would be better for them.

Yes, the lender should provide the information the customer needs to make their decision but don’t expect shop staff to be financial advisers. That would lead to more mis-selling cases and more work for those claims management companies looking for loopholes.   

£50 of store credit doesn’t need the same rules as a £500,000 mortgage. The OFT should set out principles not prescribe. For example, a retailer should have a policy for providing explanations to customers but shouldn’t have to follow a sort of legal manual that sets out every last step to be taken. That just creates an unfair presumption that anything that isn’t one of those steps is somehow irresponsible.

Incredibly there are another five inquiries, reviews and new sets of regulations under way in the retail lending sector – all with laudable objectives I’m sure. But let’s not starve customers and the wider economy of a valuable service while handing the opportunists a feeding frenzy.

  • Stephen Robertson Director-General, British Retail Consortium