New rights and lower costs for credit card users
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Issued on 14 March 2010
Prime Minister Gordon Brown today announced new rights for Britain's 30
million credit card users that will save consumers millions of pounds and give
people more control over their finances.
The new rights were secured in an agreement between the Government and the
credit and store card companies negotiated in the light of feedback from
thousands of consumers to a Government consultation on credit cards. The key
changes will be introduced by the industry this year and given statutory force
as soon as possible.
Gordon Brown said:
"Step by step, we are reinventing the financial services industry after the
global financial crisis and moving the balance of power back towards consumers.
These new rights will put an end to the irresponsible lending practices that
people have been most concerned about, and help cut the cost of borrowing."
The Government’s agreement with the card companies will mean the most
expensive debt is paid off more quickly, better repayment plans for new
customers, a ban on credit limit and rate increases for people at risk of
financial difficulty and a right to 60 days to reject interest rate increases.
The Government estimates the new rights will save consumers almost £300 million
a year and one industry forecast predicts customers will gain around £500m.
Payments will go towards debt with the highest interest rates first,
reversing the industry practice that prevented consumers clearing their most
expensive debt until after they had paid off debt at lower rates, including 0
per cent balance transfers.
Consumer Minister Kevin Brennan said:
"This is a big win for consumers and helps to put them back in the driving
seat with their finances. When we asked the public what changes they wanted to
see we discovered most people did not know the charges worked this way. They
thought it was unfair and confusing, and they naturally wanted to pay off their
most expensive debts first.
"This is a fair framework of rights and rules that makes sure easy and
convenient lending for the majority doesn’t lead to unmanageable debt for the
minority who may be in financial difficulty."
Other measures designed to encourage responsible borrowing and lending and
help people avoid taking on unmanageable debts include:
· The new Consumer Credit Directive regulations and OfT Irresponsible Lending
Guidance to be introduced before the summer, requiring lenders to check
customers can afford a loan, give clear information on new loans and give a
14-day cooling off period during which new loans can be cancelled. Lenders who
fail to comply run the risk of having their licence to lend withdrawn.
· All consumers to have access to their credit records online for £2 or free
of charge from June 2010, under a new agreement with the three main credit
reference agencies secured by the Department for Business, Innovation and
Skills. Access will be free for victims of ID fraud and people receiving debt
· Stronger protections under the Lending Code agreed between the British
Bankers Association and the Ministry of Justice, so that lenders consider
reducing or freezing interest and charges, and accepting token payments, from
people who suffer a sudden income shock.
· For those suffering the most serious financial hardship, proposals by the
Department for Work and Pensions to reform the Social Fund, so that it will be
more efficient, easier to understand, and families will be given independent
money advice to help them manage their debts.
The five new rights for credit card users agreed by the Department for
Business, Innovation and Skills with the UK Cards Association and the Finance
and Leasing Association (representing store card companies) are:
· Right to repay: consumers’ repayments will always be put against the
highest rate debt first. For consumers opening new accounts the minimum payment
will always cover at least interest, fees and charges, plus one per cent of the
principal to encourage better repayment practice.
· Right to control: consumers will have the right to choose not to receive
credit limit increases in future and the right to reduce their limit at any
time; and consumers will have better automated payment options. Consumers will
be able to do both of these online.
· Right to reject: consumers will be given more time to reject increases in
their interest rate or their credit limit.
· Right to information: consumers at risk of financial difficulties will be
given guidance on the consequences of paying back too little; and all consumers
will be given clear information on increases in their interest rate or their
credit limit including the right to reject.
· Right to compare: consumers will have an annual statement that allows for
easy cost comparison with other providers.
In addition, consumers who are at risk of financial difficulties will be
protected through a ban on increases in their credit limit as well as the ban on
increases in their interest rate, and card companies will work with debt advice
agencies to agree new ways they will provide targeted support to consumers at
1) The joint statement between BIS and the credit and store card industry,
the Government response to its consultation on credit and store card regulation
and supporting documents, including a Plain English version, are at : http://www.bis.gov.uk/c
2) The credit and store card review was announced in the Consumer White Paper
published on July 2nd 2009. The Government’s proposals were open to public
consultation from October 2009 to 19 January 2010, attracting almost 5,000
public comments and votes in an online survey.
3) Government estimates that consumers will gain £296m a year from changes in
the agreement. The savings to individual card holders depend on how much they
owe and repay and for some it could save hundreds of pounds. Nationwide expects
the changes will give consumers £500m a year and say a typical customer would
save £224 in their first year after transferring £2,020 at 0% (the average
transfer) and making average use and repayments on the card.
4) The credit and store card industry will work with consumer groups and debt
advice agencies to agree how they will identify at risk consumers who will be
protected from increases in their credit limit or interest rate and to ensure
communications are clear and easy to understand. This detail will be agreed by
June to allow time to make the necessary systems changes.
5) The ECCD regulations will come into force in the UK as of 1 February 2011.
Lenders will have from April 2010 until 31 January 2011 to comply with the new
provisions, but are encouraged to offer consumers the new rights as early as
6) The Ministry of Justice has been working with the British Bankers’
Association (BBA) and the Consumer Credit Counselling Service (CCCS), with input
from Citizens Advice (CitA) to develop a new way to help people who suffer an
unexpected ‘income shock’ such as redundancy, reduced hours or illness. For
further information on additional measures to help debtors by those
organisations who follow the Lending Code, please contact the British Banker’s
association Press Office on 020 7216 8989 or Frances Walker, Head of Media and
Public Affairs at CCCS, on 077717 88713.
7) The Social Fund Green Paper proposes a package of reforms designed to
create a Fund that: makes it easier for customers to get one-off or occasional
support; provides more support to frequent users of the Fund to help them tackle
the underlying problems they face; and provides better value for money for the
tax payer by reducing the number of frequent users. Full details will be
available by noon at: www.dwp .gov.uk/consultations/2010/social-fund-reform.shtml
8) The Government is also announcing plans to work with targeted retail
sectors to encourage them to adopt pre-payment protection for consumers. The
Department also intends to consult on specific regulation in the area of
9) The Office of Fair Trading’s irresponsible lending guidance for lenders
will be published shortly.
10) The OFT’s review into high cost credit is expected to be published next
11) On March 11, Chancellor of the Exchequer Alistair Darling launched a new
free money advice service to be rolled out around the country. The
Moneymadeclear service includes a helpline, website and face-to-face advice
services, delivered through a range of partners such as Citizens Advice Bureaux
and Age Concern. Full details at the HM Treasury website: hm-treasury.gov.uk
12) Consumers have a statutory right to access their credit reports under the
terms of the Consumer Credit Act 1974. The charge under the statutory scheme is
£2, covering a proportion of the administration costs.
13) The three main credit reference agencies are Experian, Equifax and
14) For information about issues relating to personal credit reports
consumers can contact the Information Commissioner’s Office at (http://www.ico.gov.uk/)
or the Financial Services Authority’s Moneymadeclear website http://www.moneymadeclear.fsa.gov.u
Department for Business, Innovation & Skills
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Article Published/Sorted/Amended on Scopulus 2010-03-16 18:20:17 in Business Articles