The government gives
credit card holders improved repayment plans.
March 2010
After an extensive Credit and Store Card Review the government have
introduced new legislation to combat debt, by addressing the way credit
card companies make customers make their repayments.
The practice of 'adverse order of payments' - whereby a customer transfers
a debt to the card provider at a low-interest rate, and then uses the
card to purchase goods at a higher interest rate, and is then forced
to pay off the cheaper debt first with their repayments - has been stopped
as part of a new package by the government.
The procedure of using the monthly minimum payment to settle low-interest
debt first, leaving high-cost loans unpaid cost the customer dearly.
Gordon Brown addressed the credit card providers' 'sharp practices'
in charging interest, with a new fairer deal for consumers.
This is part of a five-point initiative by the government to help protect
credit card holders:
- Right to repay - credit card holders' repayments
will always go to pay the higher interest debt first. For new account
holders the minimum payment will now at least cover the interest,
charges and fees and also 1 per cent of the amount borrowed.
- Right to control - customers can refuse any increase
in their credit limit and will have the right to reduce their credit
limit at any time.
- Right to reject - consumers will have more time
(60 days) to change credit card providers if there is an increase
in their interest rate, and will have the right to reject any increase
of their credit limit.
- Right to information - credit card holders will
receive guidance on the consequences of making low repayments and
their right to reject increases in their interest rate and credit
limit.
- Right to compare - credit card holders will receive
an annual statement which will allow them to easily compare costs
with other credit card providers.
The aim of these measures is to give
the power back to the consumer by reducing borrowing costs and to
prevent irresponsible lending practices.
It has been estimated that the changes will cost the credit card
industry, and save consumers, £533 million during the first
two years of the changes. Analysts predict that to recoup any subsequent
losses some credit card providers will be likely to introduce an
annual fee for their credit card.
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