Clause 13 - Interest on default sums
Consumer Credit Bill
12:00 pm
Mr Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations, Competition and Consumers), Department of Trade and Industry; Bradford South, Labour)
Hon. Members will be aware of high-profile cases in the press in which compound interest on default sums has resulted in massive escalations of the original debt. That is of considerable concern, and it is addressed in clause 13. Creditors or owners are entitled to the cost of recovering the debt, but that should not unduly penalise debtors or hirers. The clause will prohibit the compounding of interest on default sums and allow the charging only of simple interest. A default sum will be defined in a new section 187A of the Consumer Credit Act 1974 as an amount payable, other than interest, by the debtor or hirer for any breach of their agreement. For example, this could include a late payment fee, a mispayment fee or legal fees. Any current agreements that permit compound interest will have to be amended to allow simple interest only.