Consumers borrowing money are now covered by the new Lending Code, which came into effect at the beginning of November.
The Lending Code replaces those aspects of the Banking Code covering borrowing and sets rules that lenders must follow when providing overdrafts, credit cards, charge cards and loans to personal and small business customers.
The Code will be enforced by the Lending Standards Board and includes requirements covering:
- credit assessment and the use of credit reference agencies
- risk-based pricing principles for credit cards
- financial difficulties and debt collection
- helping customers in debt who have a mental health condition
Robert Skinner, chief executive of the Lending Standards Board, said: ‘The Lending Code sets out what it means to be a responsible lender covering both credit assessment and the support that will be available if things go wrong. It will be followed by all significant providers of credit products who currently subscribe to the Banking Codes.’
The new provisions came into effect on 1 November when responsibility for the non-lending aspects of the Banking Codes moved to the FSA. For more details, read Which?’s analysis of the FSA’s new responsibilities.
Who is covered by the Lending Code?
The Code protects the following customers when they borrow money:
- A consumer
- A micro-enterprise. A micro-enterprise is a business that employs fewer than 10 people and has a turnover or annual balance sheet that does not exceed £2 million
- A charity which has and annual income of less than £1 million
The Lending Code contains detailed notes on how customers should be dealt with through the whole product life cycle, from marketing and account opening to the provision of information on changes to terms and conditions and interest rates. Protection is also included to help when something goes wrong, including when someone is experiencing financial difficulties.
The Lending Standards Board
The Lending Standards Board (LSB) is the successor to the Banking Code Standards Board and begins its work today, 2 November 2009.
The LSB has a number of key objectives:
- To assist firms to interpret and meet the requirements of the Lending Code
- To monitor and enforce compliance with the Code and take disciplinary action for material breaches
- To identify any gaps and deficiencies in the Code that could lead to consumer detriment and to advocate change
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