New benefits for cardholders

New credit card legislation

Rather fittingly on World Consumer Rights Day, Gordon Brown announced that in a measure to tackle consumer debt, credit card firms will be required to change the way they make consumers pay off their debt, in an attempt to benefit the cardholder.

Credit Card companies have naturally cried foul because they claim the new laws are going to cost them money - GBP£500 million by one building society's reckoning. And cardholders that are directly affected are happy, because they feel they are not going to be robbed blind by unfair interest charges.

How it will benefit cardholders

The government's legislation would stop the practice known as "adverse order of payments," which means consumers' repayments will always be put against the highest rate of debt first. In other words, after cardholders transfer a debt to a card provider at a low or zero rate of interest, and subsequently buy items on the card at a higher rate of interest - often around 20 percent - most card companies force them to pay off the cheaper debt first when they make repayments. Although the cardholder feels like they have transferred their debt for nothing, the costlier debt remains on the card longer, earning the card companies more interest. The move is estimated to save nine million of the country's 30 million cardholders around GBP£500 million a year, or a typical person GBP£225 each year, the Guardian has suggested.

The government also implemented a ban on card providers from increasing their credit limit or interest rate, essentially protecting consumers with poor credit or those in financial difficulty from getting into anymore debt. 

"Step by step we are reinventing the financial services industry after the global financial crisis and moving the balance of power back towards consumers," said British Prime Minister Gordon Brown. "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 new repayment deal will also allow cardholders the right to reduce their credit limit at any time and 60 days to switch provider if they are informed of an interest rate increase.

Ross Densley

Ross Densley is a graduate from Bath Spa University, and has freelanced for several magazines ranging across a section of topics such as animation, business, film and lifestyle. When Ross is not working he writes and edits his own satirical website.

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