Rewrite, revise, redraft

In all the heat and noise of the credit crunch, it seems to have passed unnoticed that the bodies responsible for regulating personal credit '“ the BERR and the OFT '“ have been quietly going dotty. They have certainly lost what perilously precarious grip they ever had on consumer credit. The sweeping reforms spearheaded by the Consumer Credit Act 2006 have descended into a complete shambles made worse by the removal of all financial limits on regulation on 6 April 2008.

Haste or urgency cannot be proffered as an excuse. The Consumer Credit Bill took two parliamentary sessions to become law because, on the eve of its final reading in 2005, Tony Blair called a General Election and it was abandoned. Once passed in March 2006, the actual implementation of the provisions of the Act would appear dilatory even to a professional elephant breeder. There have already been no fewer than nine commencement dates with at least one to come.

String of mistakes

In the spring of 2008, it was realised that, unless something was done about it, buy-to-let finance would become regulated when the financial ceilings for control were removed on 6 April. So, just before this deadline, a hurried order temporarily removed buy-to-let finance from the category of agreements which would become regulated on that date. The intention was then to amend the Act to create an exemption from regulation for buy-to-let finance (and at the same time to correct a number of other howlers in the 2006 Act) and to do all this in time for 1 October 2008. Even that went wrong. The BERR decided to go down the route of a legislative reform order which, of course, needed an affirmative resolution to be passed by parliament. The draft was published. Everybody in the credit industry assumed that this draft would eventually be enacted and made their preparations.

Sadly, no. The draft itself contained more howlers and had itself to be amended in late July 2008. By that time, of course, parliament was in recess and would not be back before October. So reforms expressly designed to tie in with new regulations which did come into force on 1 October 2008 now await the pleasure of parliament. Even when passed the order will not (cannot) be retrospective '“ so what will happen between 1 October and the order eventually coming into force? Answers on a postcard to me at Henderson Chambers.

It is not that 1 October was without its problems already. On that date the Information Requirements Regulations were due to come into force. It will come as no surprise to learn that in July 2008, some 10 months after the regulations were passed and just as the industry was completing its preparations to change all its procedures and documents to meet them, the OFT realised it had made a complete 'Horlicks' and completely rewrote them.

Regulations gone mad

The Information Regulations themselves and the provisions of the 2006 Act they implement are a fit subject for a psychiatrist specialising in complication neurosis. Those of us with credit cards are, of course, used to getting monthly statements but now, all debtors and hirers, even on fixed-term loans, must get regular statements. Worse still, if any debtor gets into arrears by the equivalent of two instalments, the creditor must send him an arrears notice even if the creditor has no intention of taking enforcement action.

That might just be tolerable but for the fact that the regulations go mad over the form and content of all these statements. Some of the statements have to contain no fewer than 16 separate pieces of information and all of them must contain statutory warning and information 'boxes', which by themselves easily fill an A4 sheet in relatively small type. What is more, the debtor in arrears must be sent an 'arrears information sheet' issued by the OFT. Such is the dottiness of the rules for arrears notices that a notice has to be sent to the debtor 14 days after the date his arrears reach the equivalent of two instalments, and must be sent even if in the 14 days the debtor has paid off every penny of the arrears.

At points the regulations become surreal. 'Home credit' is the form of credit used by the very poorest people at the bottom end of the credit-worthiness scale. The notices these debtors are sent must contain obligatory boxes advising debtors to consult the internet and to shop around for their credit. The supposition that these debtors have ready access to the internet would appear unrealistic even by the standards of Queen Marie-Antoinette. Furthermore, the suggestion that this class of debtor can shop around for loans can only be classified as utopian.

The sanctions for non-compliance are, naturally, draconian. The creditor will be unable to enforce the agreement at all: interest will stop running and all other default sums become unpayable. The most minute error will suffice for non-compliance '“ a misplaced comma or a misprint in a statutory warning notice will attract the sanctions and, unlike the position with consumer credit agreements (also subject to endless statutory meddling), the courts have no power to relieve creditors from the consequences of these errors.

Big finance companies will doubtless get things right but the rest will inevitably make mistakes and wholly undeserving debtors will obtain large windfalls. Though it is scarcely for me to complain, it will be a field day for lawyers.

Will the consumer really benefit from this information overload? Does he really want to be preached at by the OFT? Is he really going to be persuaded to avoid credit in future? Or is it all a triumph of regulation over common sense?

Polonius says 'neither a borrower nor a lender be'. The BERR and the OFT are doing their best to prove him right.