Chancellor Rishi Sunak has said he will ask the Financial Conduct Authority (FCA) to investigate ways to reform credit card and loan APRs.

The move comes in response to a report published by MoneySavingExpert (MSE) which has urged policymakers to get rid of EU-mandated ‘representative APRs’, which the organisation says is worse for consumers.

The site, which focusses on finding deals, saving cash, and financial campaigns, says that until 2011 UK firms were able to offer ‘typical APRs’. This meant around 66 per cent of accepted applicants needed to get the advertised interest rate.

It said that following EU harmonisation changed these rules to allow representative APRs, where around half those accepted get the headline rate.

"Leaving the EU means we are now able to set our own path on financial services regulation – to ensure our rules act in the interests of UK consumers and respond quickly to our flexible and dynamic markets,” said chancellor Rishi Sunak, as reported by MSE."It is important that advertised APRs reflect the rate the consumer is likely to receive.

“I welcome the report by MoneySavingExpert looking at ways that this could be improved, and will ask the FCA to assess the merits of reform in this area."

The report claims that credit applications are ‘inherently anti-competitive’ and that often the only way to find out the rate is to make an application. It says that this marks a consumer’s credit file, which basically means they have to take what is offered, even if the APR is higher. If they choose to turn the offer down, their credit file is marked anyway, which can reduce their ability to get credit elsewhere.

It also highlights that there is no cap on what can be charged.

Additionally, according to MSE research, over the past three years 40 per cent of personal loan applicants and 28 per cent of credit card applicants who know the details of their experiences said they have been offered a higher rate than advertised at least once.

“ We are told there will be a Brexit dividend – well, this change was caused by EU harmonisation, so I’m asking the Government to deliver on this one,” said Martin Lewis, founder of MSE. “Lenders tend to make most of their profits ‘from the tail’ – those people who get charged higher rates – and often they’re the ones with weaker finances. They need protecting.”

Martin added: "This is heightening with the cost of living crisis biting, as unsecured borrowing is close to reaching record levels. That’s why we should urgently revert to the UK’s own system of typical APRs, or something which protects consumers even more strongly. So I’m grateful the Chancellor’s supporting that this is something that needs urgently looking at.”

Share Story: