How the credit card industry is set to change
January 15, 2009
The credit card industry has found itself in the news on a number of occasions over the past year or two for one reason or another, but never more so than in the last couple of months. This is because the financial headlines have been filled with stories about how interest rates and fees on credit cards have continued to increase even though the base rate has plummeted since October.
The base interest rate in the UK now stands at just 2% having fallen by almost two thirds compared to last November, yet interest rates on credit cards have continued to rise, often with no reason of justification, leaving already cash strapped consumers even worse off at a time when they have become increasingly reliant on their credit cards because of the financial strain that most are facing.
The situation has sparked debate not just amongst consumers and campaigners but also amongst government officials as high up as the Prime Minister himself. Gordon Brown recently commented on credit card rates stating that the credit card firms were fleecing consumers at a time when most were already struggling, and that he wanted to see this practice come to an end and for credit card customers to be treated more fairly. In fact, recent meetings have been held between the Business Secretary Lord Mandelson and officials from the credit card industry. Also in attendance was the Consumer Affairs Minister, Gareth Thomas.
As part of the discussions various measures are being introduced by credit card firms in a bid to assist struggling consumers and put an end to sudden and unjustified interest rate hikes. The industry has stated that in cases where the borrower falls behind with repayments no debt recovery action will be taken for at least sixty days providing the borrower is working with a debt management advisor in a bid to reach a solution.
The industry has now also agreed that it will stop applying sudden hikes to credit card interest rates. No interest rate hike will be added in the first twelve months of a credit or store card being taken out, and after this period interest rates will not be increased more often than every six months.
In addition to this the credit card industry has agreed to ensure that all consumers are given at least thirty days notice of any interest rate hikes planned, which will put an end to the overnight credit card interest rate hikes that many have complained about, and will also be given the option of closing their accounts and repaying the existing debt at their old rate of interest should they wish to do so. This comes after the Consumer Affairs Minister threatened a full investigation of the credit card industry if firms refused to take action to make improvements and assist consumers.
Mr Thomas stated: ‘I am pleased by the commitments card companies have made to me today. I recognise that these changes will not be without financial pain for credit card companies, but it was vital that we nipped in the bud the bad practices that were causing real hardship for borrowers. These commitments will help families manage their finances and cope with repaying their debts.’
An official from the Consumer Credit Counselling Service said: ‘There is much good news here. By agreeing not to raise interest rates for people struggling to make repayments, credit card companies have taken a significant step and will help ensure bad personal situations are not made worse. However more still needs be done. It is essential that all credit card companies follow the example of the best and freeze charges, fines and interest on the debts of clients who are on a debt management plan with CCCS or another non-profit agency.’
The shadow business secretary was rather less enthusiastic about Labour’s efforts over issues such as these, stating: ‘Yet again Labour has bottled out of taking real action to help consumers struggling as Gordon Brown’s recession bites. Under Labour’s watch, personal debt has risen to the highest levels ever recorded by any country in the world. Gordon Brown should take a leaf out of our book and ban extortionate store card interest rates and force credit card companies to provide clear information to the public about the true cost of borrowing.’
However, whilst some issues appear to be getting sorted out there are still other problems to address. For example, one credit card firm, MBNA, was recently slated for encouraging consumers to withdraw cash on their credit cards over the festive season, which comes with very high interest rates and charged.
One debt charity official said: ‘Particularly in the current climate, it is breathtaking that MBNA is actively encouraging customers to take cash out on their credit cards. This is an extremely expensive way of accessing money and often indicates that a customer is in a poor financial situation because they don’t have any alternatives. It is also completely inappropriate to raise credit limits without consulting the customer first.’
Written by Peter · Filed Under Credit Cards
Egg card is completely fleecing me beyond a joke. I CAN afford the repayments and HAVE NOT used the card for over 2 months. But they STILL gave me THREE different charges this month. I wrote to them last month to ensure that the ‘minimum payment’ would be enough to ensure I was not over the agreed credit limit. (Is this not what a minimum payment is supposed to be?) And somehow, I am nineteen pounds over my limit, after paying the minimum payment and not using the card? How can this be? I feel like they are thieving from me. I understand I have to pay interest, and that sometimes the minimum payment just covers this, but surely they cannot get away with making your minimun payment too little and then charging you a fee for being over the limit????? It is unacceptable, but what can you actually do?
Capital One are also fleecing me. I have a very modest balance on my account for over a year. Recently I received a new replacement card, when activating the card over the phone (a really painful experience in itself), I asked for confirmation of my purchase interest rate. I was told this was 10.4%, I also asked for written confirmation of this rate. This duly arrived a few days later, it stated the rate was 14.22%, the next day another letter arrived stating that because of the “Credit environment”, my rate was to increase to 22.12%, an increase of 7.9% ?
My statement always says 15.2% ??
My account has always been clean and my credit rating good (the last time I checked), so what is company up to….needless to say, they have seen (but not heard) the last from me.