The Government has put forward proposals to ban some of the unfair credit card terms which are currently widely employed. It is aiming to force Credit Card Companies to 'clean up their act'. The proposals will now be put out for Consultation by the Department for Business, Enterprise and Skills.
Some of the main changes are:
- Outlawing the practice of raising customer credit limits without being asked to do so;
- Banning credit card companies from increasing the interest rate on existing debt;
- Preventing companies using their customers' monthly payments to pay off their cheaper debts. Priority will instead be given to those debts which incur higher interest charges, such as cash advances; and
- Forcing an increase to the minimum monthly payments the card issuers can ask for, so as to accelerate the overall rate of repayment.
The body representing UK card issuers said it would study the proposals and a spokesperson for the UK Cards Association said "Today signifies the start of the government's consultation exercise." She added "We look forward to widely publishing our own response to the many ideas put forward. We will continue to support change where there is evidence to show that it is in the best interests of consumers. We expect the government to do the same."
Consumer Minister Kevin Brennan said: "My view is clear, the current relationship between card companies and consumers cannot go unchallenged. It is simply not fair. 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 proper explanation. Consumers should not feel each month as if they have been exploited or disadvantaged."
The Nationwide building society welcomed the BIS proposals. "We are delighted that BIS have included order of payments in the review," said Nationwide director Chris Rhodes. "The US has already recognised that the practice of paying the cheapest debt first is unfair to customers and is forcing lenders to be more consumer friendly."
Citizens Advice welcomes any proposals that help people with their debt situation and targets practices that pile on debt. Currently debt services are under unprecedented demand, as people struggle with the worst recession in living memory. Along with other advice agencies Citizens Advice has been seeking a review of these issues for some time now.
In the last 3 years the Dealing with Debt Service operated by Citizens Advice has helped about 6,000 people and dealt with in excess of £53 million of debt in NI. A third of that debt comes from credit cards and it is by far the most common type of credit that people get into financial difficulty with. In the 2nd quarter of 2009 an average of 254 plastic card purchases were made in the UK every second and there are now more credit cards in the UK than people. As such Citizens Advice supports any proposals aimed at improving the situation for those who find themselves in financial difficulty. However CAB would like to stress that any measures introduced must be designed to help the most vulnerable in society and seek to ensure that they are not pushed into the arms of the most expensive forms of credit and/or unscrupulous lenders, thus making a bad situation worse.
