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New rights and lower costs for credit card users


BIS Department for Business Innovation and Skills - Expert Author

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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 advice.

· 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 risk.


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 : reditconsultation/response

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 possible.

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

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 pre-payments.

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 month.

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:

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 CallCredit

14) For information about issues relating to personal credit reports consumers can contact the Information Commissioner’s Office at ( or the Financial Services Authority’s Moneymadeclear website k/

Department for Business, Innovation & Skills

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Article Published/Sorted/Amended on Scopulus 2010-03-16 18:20:17 in Business Articles

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