Clause 13 - Interest on default sums
Consumer Credit Bill
2:30 pm
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
Hon. Members will be aware of the high-profile cases in the press in which compound interest on default sums has resulted in massive escalation of the original debt—we are all aware of the case that is currently at appeal. The issue is one of considerable concern and clause 13 addresses it.
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. That could include, for example, a late payment fee, a missed payment fee or legal fees, as we discussed this morning. Any current agreements that permit compound interest will have to be amended to allow simple interest only. I hope that that satisfies the hon. Gentleman.
Question put and agreed to.
Clause 13 ordered to stand part of the Bill.