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Rate changes for credit cards in two weeks

In just two weeks time we will see some interesting changes when it comes to how credit card companies do business. The government has held meetings with key credit card figures to discuss formal action which will mean that credit card companies must be kinder and more reasonable with customers.

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12 December 2008

Rate changes for cards in just two weeks

Rate changes for cards in just two weeks

Credit card firms have been accused of ‘profiteering from the downturn’.

The credit card industry has until now been reluctant to undertake any drastic changes and has not reflected the Bank of England’s base rate cut or been patient with the high number of defaulting customers who are victims of the credit crunch.

A fuss about mortgages

The press and online publishers have been jam-packed with articles on the decline of good mortgage deals and the lack of insistence by the government for mortgage companies to make changes to their rates, but until recently credit cards had taken a back seat and had not been discussed much.

Now that slowly mortgage providers are taking on the government’s advice, ministers are turning an eye towards the credit card companies and have agreed with them that certain practices must change.

While most reports on the discussions between the credit card industry and government have seemed friendly and reasonable it is certainly of note that if credit card firms don’t stop overcharging customers (and being unfair) they may lose their UK licensing.

Ministers described the meetings as ‘one last chance’ for credit card companies to prove that they will be responsible in this time of extreme economic hardship.

They have also been accused of ‘profiteering from the downturn’.

Deadline

By the December 9 2008 the credit card industry leaders will be required to submit to the Government a ‘statement of principles’ by which to operate and they will also be expected to lower interest rates and provide buffers of 30 days or more to those seeking debt help.

The Office of Fair Trading is on alert and will revoke licenses from companies who the Government perceives to be shirking their responsibility to provide a fair and transparent service.

Thirteen credit card companies are being targeted by the discussions and these include Lloyds TSB, HBOS, The Royal Bank of Scotland and Abbey (Santander). There are also smaller lenders involved in the new arrangements.

Interest rates

Over the last 6 months interest rates had increased with most major credit card companies by 0.4% to 17.6% despite the fact that the Bank of England base rate fell to 3%.

This has been touted proof that credit card companies were trying to take their customers for a ride.

However, the credit card industry used our reliance on credit cards as it’s excuse.

An Independent article reported that the industry felt: “the credit card industry still remains highly competitive and... official interest rates bear little relation to the cost of offering credit card borrowing.”

So basically, they were willing to charge high rates because people were willing to pay them.

Surely that to any thinking person would indicate a degree of desperation? Shouldn’t the credit card industry know better? We’ll know in 2 weeks.

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