Credit card companies agree to play fair
Credit card holders drowning in debt who seek help to repay what they owe will be a given a “breathing space” of 60 days to sort out their finances under new government rules aimed at helping consumers and encouraging interest rate cuts.
Credit card companies under pressure to cut rates
As well as helping consumers, the reforms aim to encourage credit card companies to cut interest rates by reducing the number of bad debts borne by the industry. ”
Industry agrees to play fair
Credit card companies have agreed not chase debts for a minimum of 30 days upon formal notification that a struggling customer has engaged a not-for-profit debt counselling service.
The grace period, in which consumers would be expected to negotiate and implement a repayment plan, is one of two measures introduced to reduce credit card defaults.
The credit card industry has also agreed to a two-week deadline to report back to Business Secretary Lord Mandelson and Consumer Affairs Minister Gareth Thomas about reforming its controversial “risk-based repricing principles”.
These principles allow card providers to hike up interest rates at short notice - by as much as 10% - on accounts at risk of default, thus plunging struggling consumers further into debt.
Hopes for interest rate cuts
As well as helping consumers, the reforms aim to encourage credit card companies to cut interest rates by reducing the number of bad debts borne by the industry.
The industry has been under fire for not reflecting the drop in Bank of England base interest rate. Indeed, some companies have actually increased their rates.
It has defended itself by claiming the high rates were necessary to offset heavy losses caused by soaring defaults and bankruptcies.
Industry critics refute this, arguing credit card companies have never had it so good with borrowing at record highs and interest up to boot.
The reforms were hammered out at a recent credit card summit at Whitehall, attended by 30 key players from the government, consumer groups, regulators and credit card companies.
Credit card industry peak body, APACS, described the meeting as “very constructive”.
A spokesman said: “We've welcomed the opportunity to hear the Government's views.
“The industry as a whole agreed with the Government that it would both create a set of common practice guidelines to determine how often interest rates would change and also look into how that would be communicated to customers.”
Hangover remains from era of cheap credit
Before the credit freeze, UK citizens stacked up debts of more than £1 trillion. Currently, £200 billion is owed on unsecured loans, credit cards, overdrafts and store cards
Government figures indicate more and more people are turning to credit cards to meet income shortfalls, despite the fact that around half of all applications are rejected.
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