New credit card rules

Credit card

Under proposals put forward by the UK government, some unfair credit card terms are to be outlawed. Instead credit card companies could be forced to help customers reduce their debt rather than rack it up.

The government want to stop firms raising interest rates on existing debts and prevent them from raising someone's spending limit without authority. According to research by uSwitch, the price comparison website, 5.7 million consumers saw their credit limits increased without prior consent last year.

Monthly repayments must be used to pay off the most expensive debts first, and the size of minimum repayments will be raised to ensure faster debt repayment.

"We need to be able to demonstrate what impact these would have on consumer choice and the costs to customers of using credit cards," said Melanie Johnson, chair of the UK Cards Association.

"We will be reviewing the evidence and we expect the government to do the same."

"Clean up act"

The government said that credit and store card companies had to "clean up their act" because the relationship between card companies and their customers was "unfair" and should be challenged.

They said, "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."

"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," said Consumer Minister Kevin Brennan, to the BBC.

The latest proposals, which are now being put out to consultation by the Department for Business Innovation and Skills (BIS), include:

• Changing the order of priority for credit card repayments, so that the most expensive debts, such as cash advances, are paid off first

• Increasing the minimum amount that must be paid off each month to accelerate the overall rate of repayment

• Banning the practice of raising borrowers' credit limits without their consent

• Restricting or banning increases in interest rates on debts already incurred.

Welcomed

The government's proposals were welcomed by consumer organisations.

"For too long, card companies have been allowed to apply the tricks of their trade to the detriment of millions of consumers," said Phil Jones of Which?

"We think it's simply wrong to entice people into spending more than they can afford and then to squeeze as much money out of them as possible."

Teresa Perchard of Citizens' Advice said new enquiries about credit, store and charge card debts was the biggest group of problems that people brought to CAB offices last year.

"In particular we see far too many people on low incomes who have drifted into very high levels of borrowing as a result of unsolicited increased access to credit.

Plans

The government's latest plans follow other limits on credit card practices brought in earlier this year. These ideas came after a government-organised "credit card summit" in November last year, at which card companies agreed to a set of "fair principles."

Among other things, they agreed to stop raising interest rates when customers fell behind with their repayments.

The government also pledged to ban the issuance of unsolicited credit card cheques and legislation to do this is now going through Parliament.

Consultation on the changes to credit and store card regulation will run until 19 January.

Also in January, new guidance on Irresponsible Lending Practices will be issued by the Office of Fair Trading, which will tell lenders not to encourage borrowers to increase existing debt, or they will face being stripped of their credit licences.

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