The rule of 78 changes, part of the Consumer Credit Act which comes into force on 31 May, mean regulated loans can only carry a maximum redemption penalty of one month’s interest.
Andrew Moody, managing director of Loanoptions.co.uk, explained the rules had changed to create transparency and to simplify the penalties incurred but stressed the changes only applied to regulated loans under £25,001.
He said: “The end of rule 78 is great news for mortgage brokers and intermediaries because it removes the last stigma attached to recommending loans as an alternative to remortgaging.
The legislation affects loans under £25,001 which are regulated, but for those who wish to borrow less than that the secured loan option is even more viable.
We are keen to show brokers that loans can be a most cost-effective means of raising money for clients. With the removal of the rule of 78 for regulated loans, the secured loan really comes of age as a modern and effective part of every broker’s armoury.”
Thomas Reeh, chief executive officer at The Black & White Group, said: “The most important people in the process, the customers, don’t understand the rule so we welcome and are prepared for the changes being made.
“Implications will be felt by brokers, lenders and consumers alike. Brokers will have a less daunting area to create extra income in, while lenders will have to take a cut in revenue from their products and the consumer will have greater transparency and understanding.”
