Clause 13 - Interest on default sums
Consumer Credit Bill
2:15 pm
Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)
Clause 13 is about the interest on default sums. It talks about a simple rate of interest, but although that appears to be straightforward enough, I am not sure that it is when one considers it further, even if we all agree that it is an admirable goal. A simple rate of interest says nothing about whether the default fee itself is reasonable. If the default fee on a £1,000 loan is £20, a compound rate of interest on that would not be unreasonable to most of us. If the default fee on that £1,000 loan is £200, we would feel that even a simple rate of interest would be unreasonable.
Has the Minister considered how that would affect people who go overdrawn on their current account, in which interest is traditionally compounded, if not initially paid? That would have serious costs for lenders—millions of pounds worth—which they would seek to recoup elsewhere, presumably from charges on non-defaulters. Why does the Minister think it right that non-defaulters should have to subsidise defaulters?
I am concerned about the level of overdraft charges, as I mentioned earlier, but should not the real target be loan sharks with staggeringly high levels of compound interest?