Credit card changes aim to help consumers

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By Paul Davies
Know Your Money Editor

Thirty million people in the UK use credit cards and new plans have been revealed that aim to put consumers back in the driving seat with their money.

The government plans, unveiled earlier this week by Gordon Brown, hope to put an end to what the prime minister termed "irresponsible lending practices" that were sometimes occurring.

What are the changes and why?

The Department for Business, Innovation and Skills announced an agreement with credit card companies that will see the most expensive debt being paid off more quickly and improved repayment plans on offer to new customers.

Also included in the proposals is a ban on credit limit and rate increases for those at risk of financial troubles and a 60-day period where they can reject any proposed increases in interest rates.

The government's agreement with the card companies will mean the most expensive debt is paid off more quickly, better repayment plans for new customers.

It is estimated that the new plans will save the people of Britain close to £300 million each year, while one industry prediction expects customers will gain around £500 million. Speaking about the changes, consumer minister Kevin Brennan said: "This is a big win for consumers and helps to put them back in the driving seat with their finances. When we asked the public what changes they wanted to see we discovered most people did not know the charges worked this way. "

The report states that debt with the highest rate of interest will be paid first, calling a halt to the practice that stopped customers from clearing their most expensive debt until they had paid off debts at lower rates.

A step in the right direction?

According to recent research released by Moneyfacts, credit card rates are at a 12-year high.

Rates had fallen at the end of the 1990s due to increased competition between credit card providers, however all this has changed as lenders show increasing concern that borrowers may not be able to repay their debt. This means that the average credit card rate now stands at 18.8 per cent, the highest level seen since 1998. The new proposals have been welcomed but some people would have liked to have seen further changes to the way credit card debt is controlled.

Chris Tapp, director of Credit Action, said: "The government, in our view, is taking a step in the right direction but only really a baby step. We don't think they have gone as far as we would have liked to [have] seen them go."

He added that the organisation would have wished for more efforts made to inform people that paying more might be a good idea that could be done by raising the level of minimum payments.

More good news for borrowers?

Peter Harrison, credit card expert, said: "In a separate move, MBNA has announced that it is stopping issuing all credit card cheques from the end of March. Unsolicited credit card cheques have long been a source of annoyance to many customers and are due to be banned as part of the Financial Service Bill when it comes into force later this year.

"MBNA is the biggest issuer of credit card cheques in the UK and they should be commended for banning them completely. This is good news for borrowers, as credit card cheques never afforded protection under Section 75 of the Consumer Credit Act, which consumers are used to on normal credit card transactions."

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