Government calls on credit and store card companies to clean up their act
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Issued 27 October 2009
The Government has today announced new proposals to ensure that credit and
store card companies give people a fairer deal, in the latest of a series of
reforms designed to make financial services work for consumers.
Consumer Minister Kevin Brennan said:
“Card companies have to get their act together and do more for
consumers.
“The Government is putting forward new measures today which we believe
will give consumers a better deal. I want to hear from the most important
people, the customers, about their experiences and to get their views on our
proposals. My opinion is clear, the current relationship between card companies
and consumers cannot go unchallenged. We need to put the customer back in the
driving seat.
“It is not acceptable for card companies to impose complex and
confusing terms and conditions that can leave people baffled, or to increase
interest rates without a proper explanation. Consumers have a real
responsibility to manage their finances properly, but they also have a right to
clear information to enable them to do that. Consumers should not feel each
month as if they’ve been exploited or disadvantaged.”
The Government has today published a consultation document giving the detail
of proposed changes in the law on repayment policies imposed by credit and
store card providers. The consultation builds on action already taken by the
Government. It examines:
· Changing the rules that set out the order in which debts built up on a
credit card are paid off
Most credit card companies make customers pay the cheapest debt off
first.
This is a particular problem for consumers who withdraw cash on their card,
typically charged at 25 per cent APR or more. They are often the most likely to
be vulnerable to financial difficulties. The Government is considering rules
that would mean the most expensive debt is paid off first.
· Raising the minimum monthly repayments levels to encourage people to pay
off their debt faster.
Around one third of people who don’t pay off their credit card bill in
full each month make only the minimum repayment. This can mean consumers take
decades to pay off the debt. The Government is considering the introduction of
a mandatory higher minimum payment each month.
· Banning the practice of increasing credit limits without prior consent
It is common practice for credit and store card lenders to increase credit
limits without consent. According to recent research by Uswitch 5.7 million
consumers saw their credit limits changed in this way in the last year. The
Government is considering banning this practice or requiring consumers to
opt-in to credit limit increases.
· Placing restrictions on increasing the interest rate on existing debt
The Government is concerned about interest rates being increased without
proper explanation. Consumers using their cards responsibly and making payments
on time should not pay the price for excessive risk-taking by financial
institutions. The Government is considering banning or restricting the
re-pricing of existing debt.
Notes to Editors
1. The credit and store card consultation runs until January 19 and people
can read the proposals and register their views at: www.bis.gov.uk/creditco
nsultation
2. The Government said in the Consumer White Paper (published July 2 2009)
that it would examine the way credit card repayment policies can lead to people
paying more in interest charges than they expect.
3. The Government is already taking action and is legislating to ban
unsolicited credit card cheques in November. Under the Office of Fair
Trading’s Guidance on Irresponsible Lending Practices, coming into force
in January, lenders should not to encourage borrowers to increase existing
debt. Lenders failing to follow the OFT's guidance can be stripped of their
credit licences. This could be used to enforce changes to minimum payments and
credit limit increases. The Consumer Credit Directive comes into force in June,
requiring credit card companies to properly explain their charges.
4. The consultation builds on the ‘fair principles’ agreed at
the
Credit Card Summit at the Department for Business in November 2008.
Department for Business, Innovation & Skills
The Department for Business, Innovation and Skills (BIS) is building a
dynamic and competitive UK economy by: creating the conditions for business
success; promoting innovation, enterprise and science; and giving everyone the
skills and opportunities to succeed. To achieve this it will foster world-class
universities and promote an open global economy. BIS - Investing in our
future.
About the Author
© Crown Copyright. Material taken from the Department for Business,
Innovation & Skills. Reproduced under the terms and conditions of the
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Article Published/Sorted/Amended on Scopulus 2009-10-27 12:33:08 in Business Articles
