IDEAS home Printed from https://ideas.repec.org/p/bng/wpaper/19006.html
   My bibliography  Save this paper

The Consumer Credit Act 1974 and the emergence of the APR as a consumer protection policy tool

Author

Listed:
  • Bernardo Batiz-Lazo

    () (Bangor University)

  • Santiago Carbo-Valverde

    () (CUNEF Colegio Universitario de Estudios Financieros
    Bangor University)

  • Sergio Castellanos-Gamboa

    ()

Abstract

The ‘Crowther Committee’, in their report of 1971, proposed a fundamental change in consumer credit regulation in the UK. Among many aspects, they campaigned for the calculation and publication of the true cost of lending, i.e. the annualized percentage rate (APR), of all consumer credit products. The APR was introduced to reduce information asymmetries, thus improving consumers' rights and incentivizing competition among credit grantors. This report resulted in the enactment of the Consumer Credit Act 1974 (CCA74). This paper studies the effects of the CCA74 on the British economy, through the introduction of the APR. Moreover, it tests the presence of a structural break in the relationship between the price and volume of consumer credit. Furthermore, the paper analyses the effects of shocks to consumer credit on inflation and households’ savings. This article contributes to extending the data availability for consumer credit before 1975, and to debating the understanding of the role of consumer credit during a high-inflation period. There was evidence of a significant effect of the CCA74 on consumer credit, driven by the introduction of the APR. VAR models suggest that this law did not cause inflationary pressures, nor motivated households to dis-save, contrary to previous beliefs.

Suggested Citation

  • Bernardo Batiz-Lazo & Santiago Carbo-Valverde & Sergio Castellanos-Gamboa, 2019. "The Consumer Credit Act 1974 and the emergence of the APR as a consumer protection policy tool," Working Papers 19006, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  • Handle: RePEc:bng:wpaper:19006
    as

    Download full text from publisher

    File URL: https://www.bangor.ac.uk/business/research/documents/BBSWP-19-06.pdf
    Download Restriction: no

    More about this item

    Keywords

    Consumer Credit Act 1974; structural break; APR; United Kingdom; inflation; savings.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bng:wpaper:19006. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alan Thomas). General contact details of provider: http://edirc.repec.org/data/sabanuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.