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Credit card companies agree to play fair


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Released 12 Dec 2008 00:03

Credit card companies have agreed with Government a new set of 'fair principles' that will put an end to overnight hikes in credit card charges and give much needed breathing space to borrowers struggling to repay their debts.

A fortnight ago, Consumer Affairs Minister Gareth Thomas gave credit card companies a deadline of two weeks to report back with a statement of fair principles, warning that he would ask the Office for Fair Trading to investigate if strong commitments to fairer treatment were not agreed.

Following the meeting with lenders on Thursday, Gareth Thomas said:

"I am pleased by the commitments card companies have made to me today.

"I recognise that these changes will not be without financial pain for credit card companies, but it was vital that we nipped in the bud the bad practices that were causing real hardship for borrowers.

"These commitments will help families manage their finances and cope with repaying their debts"

The statement of risk based assessment principles will bring about three main changes for borrowers.

* They set out how lenders will deal with cases we have been seeing of people having their interest rate significantly increased - sometimes by 10% or more, and at short notice. On this, lenders have today agreed that borrowers will always be offered an alternative if a lender seeks to increase their rate. All customers will be given the option of closing their account and paying off their debts at the existing rate of interest.

* Second, they've agreed to give people at least 30 days notice of an increase in their rate and to limit how often they will they increase it. This will make sure people have time to shop around for a better deal and plan ahead for changes to their family budgets.

* And thirdly, for struggling borrowers, industry has agreed that they will not increase rates for customers who've failed to make their minimum payments for two months or more, or if the borrower has sought help from a debt advice agency.

These commitments come on top of the agreement reached at the Minister's Credit Card summit last fortnight that the industry will give a breathing space of up to 60 days to borrowers in difficulty. That means they won't chase a debt where somebody is trying to get back on their feet and to agree a repayment plan with the help of a not-for-profit debt advice agency.

Those borrowers who have already experienced hikes should complain to their card provider if they felt their rate increase was unfair. If they are unhappy with the handling of their complaint, borrowers can take their case to the Financial Services Ombudsman Service. If the interest rate has been increased without justification, the Ombudsman can require the lender to compensate the borrower.

The Government will ask the OFT to monitor industry's progress on implementing these principles into the New Year.

Notes to Editors

1) The Prime Minister announced the Government's intention to hold a summit with the credit card industry on 11 November following mounting evidence of irresponsible practices and a failure of the industry to pass on interest rate cuts to their customers.

2) Consumer Affairs Minister Gareth Thomas chaired the Credit Card Summit at the Department for Business on 26 November. The Summit was also attended by Secretary of State for Business Peter Mandelson and involved directors and chief executives from credit card providers, trade associations representing financial institutions, regulators and consumer groups.

3) The Government's previously stated intention for the Summit was to:
-establish clear and fair principles to apply to the costs people face on their existing debt,
-ensure that new responsible lending is entered into, and
-ensure that households who get into unforeseen difficulty over this tough period are given support.

4) The Government recently brought in legislation to tackle unfair practices and has strengthened the Office of Fair Trading's enforcement powers so that they can take swift and effective action to prevent borrowers being treated unfairly.

5) Compliance with the principles will be monitored by the Banking Code Standards Board

6) The principles agreed by industry are:

Where we increase a customer's interest rate, we will provide him/her with options. These will always include the option to close the account and repay the remaining balance at the existing rate of interest, within a reasonable period, having regard to the existing level of minimum payments and the customer's financial situation. Where we offer alternative lending products, we may also provide the option to transfer the balance to such a product at the existing (or lower) interest rate.

We will not increase interest rates in the following circumstances:

* Where a customer has failed to make the minimum contractual payment requested on the last two or more consecutive monthly statements; or

* Where an agreed repayment plan is in place in respect of the account; or

* Where we have been formally notified by a not-for-profit debt advice agency that the customer is in serious discussion with it.

Provided a customer manages his/her account in accordance with the product's terms and conditions we will not:

* Increase interest rates within the first twelve months of a customer having a credit/store card;

* Increase interest rates more often than six monthly beyond this period.

We will always give a customer at least 30 days notice of an increase in interest rates, so that the customer can make other arrangements, should they so wish.

If the customer asks, we will ensure that our staff are able to provide the customer with an explanation as to why an interest rate may have been increased.

7) The principles will come into effect on 1 January. A small number of consumers may receive letters in the next couple of weeks notifying them of a risk-based re-pricing decision taken before today's agreement. These are customers of banks who already had risk-based re-pricing programmes "in flight" for this month's statement cycle.

Department for Business, Enterprise & Regulatory Reform
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Crown Copyright. Material taken from the BERR- Department for Business, Enterprise and Regulatory Reform replacing DTI - Department for Trade and Industry. Reproduced under the terms and conditions of the Click-Use Licence.

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Article Published/Sorted/Amended on Scopulus 2008-12-12 12:10:27 in Business Articles

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