Page last updated at 15:45 GMT, Tuesday, 27 October 2009

Credit card terms 'to be curbed'

Consumer Minister Kevin Brennan: '40 years' to pay off your credit card

Some unfair credit card terms are to be outlawed under proposals being put forward by the government.

It wants to stop card firms raising interest rates on existing debts and to prevent them raising someone's spending limit without authority.

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.

The body representing UK card issuers said it would study the proposals.

"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.

"These proposals risk disadvantaging more customers than they protect," she added.


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

"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.

"Consumers should not feel each month as if they have been exploited or disadvantaged," he added.

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.

Culture change

The government's proposals were welcomed by consumer organisations.

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
Teresa Perchard, Citizens Advice

"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."

Malcolm Hurlston of the Consumer Credit Counselling Service (CCCS), said: "The government has put its finger on the four main problems that consumers have with credit card debt."

"We believe that the banks should be able to change their practices on each of these but if they can't, regulation will be necessary," he added.

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.

Consumer Focus said: "Borrowers should be given at least a month's notice, and a full explanation, of any interest rate increases by their lender."

'Long overdue'

The Conservatives said the proposals "do not go far enough to address the culture of problem debt and do not seek to change consumer behaviour or encourage more responsible borrowing".

"When we tried to change the law to stop unsolicited increases in fees and interest rates the government opposed the measure," said shadow consumer minister John Penrose.

The Liberal Democrats said that reform of the credit card industry was "long overdue".

"The government mustn't dither like it has on banking reform. We need a clear and transparent system that works for consumers, not just the financial services industry," said Lib Dem business spokesman John Thurso.

'Fair principles'

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.

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