The UK Government yesterday set out wide-ranging reforms for the credit card industry in a bid to reduce the number of people struggling with unsustainable debts.
The proposed clampdown will see a ban on unsolicited credit card cheques, while lenders will no longer be able to raise borrowers’ credit limits without their consent or increase interest rates on existing debts.
It will also consult on whether minimum monthly repayments should be increased to help people repay debt quicker, as well as looking at the order in which debts on cards are repaid, to ensure the most expensive ones are paid off first.
The Consumer White Paper also contained measures to strengthen consumers’ rights, including appointing a new Consumer Advocate early next year who could help people affected by scams get their money back and lead group court actions on consumer issues.
Several practices employed by credit card providers are making it harder for people to pay back their debts.
These include setting monthly minimum repayments at a level that would generally take consumers around 25 years to clear their balance.
The majority of lenders also use repayments to pay debts that incur the lowest interest rates first, meaning that money on a 0% balance transfer deal will be paid back before cash advances attracting interest of around 25% a year.
Credit card firms will also no longer be able to send out credit card cheques to borrowers without them requesting them.
The interest charged on them is typically far higher than for a purchase made using a card, often 28% rather than around 17%.
There will also be new requirements for all lenders to check consumers’ credit worthiness before they advance money to them and to explain financial products fully, as well as curbs on excessive fees and charges.
Other measures outlined in the White Paper included:
Giving new powers to the courts to ban persistent rogue traders, with new money being allocated to tackle rogue traders operating on a large scale.
The creation of a specialist internet enforcement team to tackle internet scams.
A pilot scheme giving Trading Standards officers the power to help consumers get their money back.
The White Paper received a broad welcome.
Peter Vicary-Smith, chief executive of consumer group Which? said: “Many of the measures outlined in the White Paper are overdue but welcome.
“The important thing is that no time is wasted in turning these proposals into tangible benefits for consumers.”
Andrew Hagger, of Moneynet.co.uk, said: “Credit card cheques have wreaked havoc with the finances of unsuspecting credit card customers for years.”
The Finance and Leasing Association, however, warned that too much regulation could slow down economic recovery and harm consumers.
Spokeswoman Fiona Hoyle said: “We already face a barrage of new regulation. There are now real risks for consumers who face reduced credit availability and higher prices.”