View from City Road: Widening the scope, scrapping the detail

The Office of Fair Trading is trying to square the circle with its reviews of the Consumer Credit Act. By instinct, it would like to extend the legislation to small limited companies, remove some important exemptions for banks and generally make the law work more effectively.

But how do you get the Government to agree to what looks like more red tape at a time when ministers are enthusing about deregulation? This is especially difficult with consumer credit, since by general agreement the 20-year-old act - introduced when Edward Heath was prime minister - is one of the most tempting targets for the deregulators.

The options under review are basically three. The law could be left as it is, though this does not seem very sensible. Why should large accountancy partnerships be given the same protection as private individuals, yet one-man limited companies have none under the act?

Alternatively, the act could be extended to small limited companies, bringing them into line with the partnerships, unincorporated sole traders and others who benefit from the same protection as private borrowers.

Finally, the act could be pared down to its essentials by saying it should only protect private individuals from sharks, with no businesses of any kind covered.

Since this is already the favoured option of the deregulators, the OFT would be going against the grain if it recommended any other course. Yet the more the OFT works at it, the more it is finding reasons for improving the act rather than drastically cutting it back.

There is a way round this dilemma, though it might require substantial changes to the way the act works. Take the example of annual percentage rates of interest, which are now widely regarded as meaningless.

There is a requirement for lenders to supply written quotations on demand, yet just about the only people who ever ask to see them are local trading standards officers doing checks.

If instead of that the OFT demanded much more extensive disclosure of the costs of loans and how they are affected by interest rate changes and early repayment, the quotation rule could be abandoned.

The same philosophy could be applied more widely. The whole emphasis of the act should be changed to disclosure and setting and policing general standards of behaviour, with the OFT acting as the regulator.

The more detailed rules could go, and it might then be possible to justify a widening of the scope of the act. Anybody with a view can express it at public hearings organised by the OFT in London on 27-28 October and in Leeds on 2 November.