Wealthy clients to escape legal move on credit By Jean Eaglesham, Political Correspondent Financial Times Published: November 23 2004 02:00
Rich private clients of banks are set to be exempted from a new law in the Queen's Speech extending consumer credit regulations to cover all personal borrowing.
The consumer credit bill being announced in Tuesday's list of legislation for the new parliamentary session is focused principally on loan sharks. It will replace provisions banning extortionate credit, which have been criticised as ineffective, with curbs on "unfair" lending.
But the bill - updating the 30-year-old Consumer Credit Act - will affect high street lenders as well as rogue operators. While the industry has backed the broad thrust of the new law, it has already begun to lobby ministers about the potential side-effects.
One of these side-effects concerns the plan to abolish the £25,000 ceiling for non-business agreements covered by the legislation. The move is designed to target sharks who get round the law by offering second mortgages over this financial level.
But banks are concerned the application of consumer credit controls to wealthy private clients would create serious practical difficulties.
The banks are confident they have won an exemption but remain concerned about the wording that will be used. The industry is lobbying for a simple self-certification system that would allow millionaire clients to waive the statutory protection.
"We understand that there will be some form of of opt-out but that needs to be set in the right terms because there is no evidence of detriment in this particular market," said Eric Leenders, a director at the British Bankers Association.
The industry is also concerned over how the proposal that "unfair" loans cannot be enforced will be worded. "The devil will be in the detail," said Martin Hall, director-general of the Finance and Leasing Association.
Mr Leenders said bankers were looking for a "clean and simple" test of how fairness would be judged by the courts.
Lenders are also concerned about how the £25,000 limit for business credit will be applied. They want to ensure the limit will apply to agreements for business purchases that may also have a personal use.
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