Government threatens to feed credit card firms to industry watchdog
Credit card companies who fail cut interest rates face investigation by the UK watchdog and revocation of lending licenses.
We are not backing off. If the companies don't move, we will do down the Office of Fair Trading route.
The government has slammed the industry for overcharging on interest rates at a time when many borrowers are financially vulnerable.
While the Bank of England base rate has dropped dramatically, down to a 57-year low of 2%, the typical credit card interest rate is 17.7% APR, up by 1.1% in 12 months.
At a recent credit card summit, Business Secretary Lord Mandelson gave lenders a two-week deadline to come back with reforms to their trading principles.
It has now emerged that Lord Mandelson took a hard line during the talks, threatening failure to meet to the deadline would result in investigation by the Office of Fair Trading and loss of license.
A government source said: “We are not backing off. If the companies don't move, we will do down the OFT route.”
A spokesman for the Lord Mandelson's Department for Business, Enterprise and Reform said: “We've asked lenders to report back by the end of this week and have been in continuing talks with industry.
“We have every expectation that industry will come back with proposals to stop the pockets of bad behaviour that we have identified in risk-based repricing and will continue to work with them to ensure borrowers are treated fairly, responsibly and consistently.”
Risk-based re-pricing is the practice whereby lenders hike up interest rates by as much as 10% at short notice for customers at risk of defaulting, thus plunging them further into the red.
The government enjoys broad support in its aims but has drawn critcism for its methods.
Finance expert Martin Lewis described the “ultimatum” was absolute nonsense”. He said: “Lord Mandelson has never had any connection to credit cards in his life.
“Is he saying that credit card companies should drop their interest rates in line with the base rate drop, from an average of 18% to one of 15%?
“To make this work they would actually have to cut their interest rates by 60% to mirror the real changes in the base rate, so even if every credit card on the market took 3% off their interest rates it would mean nothing."
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