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Last Updated: Saturday, 7 January 2006, 14:38 GMT
Ireland bans credit limit hikes
By Paul Lewis
BBC Radio 4's Money Box

Liam O'Reilly, Irish Financial Services Regulatory Authority
The regulator's chief executive said the move is in the public interest

Banks in Ireland will soon be banned from raising a customer's borrowing limit on a credit card without getting their permission first.

The Irish Financial Services Regulatory Authority is introducing the new rule in July as part of a comprehensive code which will govern all aspects of the relationship between banks and their customers.

Liam O'Reilly, the regulator's Chief Executive, told BBC Radio 4's Money Box programme the move is partly a response to the growing level of debt in Ireland.

"It is certainly growing at or above the EU average at about 30% per annum," he said.

"There is a need for a set of rules of engagement between the consumer and the financial institution. They need to be given more information and have explained what the consequences are."

He said the code would not prevent the credit card providers raising limits, they just had to get the cardholder's permission first.

"It's perfectly valid for an institution to decide that a credit limit is too low. But they must say to the customer 'are you happy for it to be increased?' This is about making sure the customer is informed.

"It is up to the customer to decide if they want to avail themselves or not. It wouldn't be raised [without that]."

'No evidence'

Malcolm Hurlston, CCCS
This measure I'm dubious about
Malcolm Hurlston, CCCS
But the chairman of one of the biggest debt charities in the UK is cool on the idea of making such a change there.

Malcolm Hurlston of the Consumer Credit Counselling Service (CCCS) told the programme: "We have no evidence that the fact banks are able to raise credit limits causes people to have financial problems.

"We have looked through our database. A thousand people a week come to us and the question of their limit having been raised without accepting it has not been a factor in any case. I'm very impressed with the work the IFSRA is doing. It provides a good agenda for lenders in England. But this measure I'm dubious about."

He also warned that the costs of the change would have to be borne by all bank customers. But Liam O'Reilly said he thought it was a price worth paying.

What do you think about credit card companies increasing your spending limit at will?
"There are certain costs in this. But there is also a cost in customers getting into trouble and not repaying their loans. So there is a balance between the costs of debt recovery and of implementing this change.

"We have come to the conclusion that this [change] is in the public interest. I invite other countries to look at it and see if it is a useful measure they could implement."

In the UK, the relationship between banks and their customers is governed by the Banking Code, a voluntary agreement drawn up by a board consisting of the banks, the Treasury and five independent directors.

The code leaves the banks free to raise credit limits although customers can then decline them if they choose.

The board's chairman would not comment on any possible changes until his members had been consulted.

BBC Radio 4's Money Box was broadcast on Saturday, 7 January, 2006, at 1204 GMT.

The programme was repeated on Sunday, 8 January, 2006, at 2102 GMT.

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