Subject to paragraph (2) loans shall bear interest at the rate which in relation to a loan made under these Regulations on or after 1st September 2003 will result in an annual percentage rate of charge determined in accordance with the Consumer Credit (Total Charge for Credit) Regulations 198061 equal to the percentage increase between the retail prices all items index published by the Office for National Statistics for March 2002 and that index so published for March 2003.

If the rate referred to in paragraph (1) exceeds the rate for the time being specified for the purposes of any exemption conferred by virtue of section 16(5)(b) of the Consumer Credit Act 197462 loans shall bear interest at the rate so specified.

Interest shall be calculated on the principal outstanding daily, and shall be added to the principal monthly.

The index of prices which the Secretary of State is required by section 22(8) of the Act to have regard to in prescribing the rate of interest which loans shall bear shall be the retail prices all items index mentioned in paragraph (1).