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Interest Rates (Limits on Charges) Bill

Interest Rates (Limits on Charges) Bill






impose limits on the interest rate and associated charges which may be

charged by those providing loans and other forms of credit. 

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and

consent of the Lords Spiritual and Temporal, and Commons, in this present

Parliament assembled, and by the authority of the same, as follows:—


Credit agreements unlawful if interest exceeds the statutory ceiling


No agreement that falls to be regulated by the provisions of the Consumer

Credit Act 1974 (c. 39) shall be lawful if the rate of interest charged thereon

shall exceed the statutory ceiling as may be set from time to time by the Office

of Fair Trading (in this Act referred to as “the OFT”) in accordance with the


principles laid out in section 2 of this Act.


Where a consumer credit agreement is found to be an unlawful agreement by

virtue of this Act, the agreement shall be unenforceable and the lender subject

to either or both of the following measures—


a fine at an amount to be determined by the OFT with reference to the


principles laid out in section 6;


the revocation of the lender’s consumer credit licence.


Power to set the statutory ceiling invested in the Office of Fair Trading


The OFT shall consider the need for a statutory ceiling for the consumer credit

market, or identified sub-markets, and in doing so shall consider evidence




the degree of price competition in the market or sub-market;


the degree of credit or default risk present in the market or sub-market;



the level of average fixed costs required for firms operating in the


market or sub-market.


Where the OFT is satisfied that there is a lack of price competition in a defined

credit market or sub-market, and where the total cost of credit for borrowers

exceeds that which, in the opinion of the OFT, would cover the average level

Bill 107 53/3

Interest Rates (Limits on Charges) Bill



of fixed costs plus reasonable additional costs for bad debt provisions, the OFT

shall introduce a statutory ceiling to that market or sub-market.


Level of the ceiling


The OFT shall set the statutory ceiling at the level of the Bank of England base

lending rate plus x%, where x% represents the additional rate necessary to


cover average fixed costs in the market or sub-market, any increased costs due

to likely bad debt provisions, and a level of profitability that, in the opinion of

the OFT, would be expected within a properly functioning price competitive

credit market.


Changes in the Bank of England base lending rate will automatically result in


changes to the level of the statutory ceiling.


Ceilings may be set by the OFT for loans of different sizes within a defined

credit market, where there are variations in the level of fixed costs according to

loan size.


Any ceiling shall be expressed as an annual percentage rate as calculated in


accordance with the provisions of the Consumer Credit Act 1974 (c. 39).


Costs not included in the calculation of the annual percentage rate


Where the OFT has defined a credit market as suitable for a statutory ceiling, it

shall also consider the need to regulate any associated costs of credit

transactions that are not included in the normal calculation of the annual


percentage rate.


Where, following consideration of the issue under subsection (1) above, the

OFT considers that there is the potential for borrowers in a credit market to be

charged a high level of associated costs then it may introduce limits to any such




Publication of statutory ceilings

The OFT shall—


publish the statutory ceilings in force at any time in the London

Gazette, and


ensure that the statutory ceilings in force at any time are publicised


throughout the credit industry and are notified to consumer groups

and networks of advice agencies.


Level of fines to be set according to turnover


Where a lender has been adjudged by the OFT to have failed to observe any

relevant statutory ceiling, then a fine may be imposed, provided that this shall


not exceed 2% of the lender’s annual turnover.


When setting the level of the fine, the OFT shall have regard to—


the length of time that the lender has been operating in the market;


the lender’s previous record of observing statutory ceilings; and


the annual turnover of the lender in the last period for which accounts


are available.



Interest Rates (Limits on Charges) Bill




Where a fine is imposed the lender shall have the right of appeal to the

Secretary of State for Trade and Industry.



In this Act—

“interest” means the annual percentage rate as defined within the


Consumer Credit Act 1974 (c. 39);

“credit market” or “sub-market” means a definable sub-section of the UK

credit market (for example, pawnbroking or home credit are definable

sub-markets within a broader sub-prime market that also includes

payday loans);


“total cost of credit” has the same meaning as in the Consumer Credit Act


“credit risk” means the percentage likelihood of default on a credit


“associated costs” means the cost of services that are integral to an offer of


credit (for example, home collection charges within the home credit

industry) and includes charges payable on default.




This Act may be cited as the Interest Rates (Limits on Charges) Act 2004.



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Revised 16 June 2004