Government announces greater protection for credit card users
Government announces changes to credit card protection, which it says will save consumers millions
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The government has today announced greater protection for credit card users, with a range of new measures which the industry will need to introduce.
The agreement made between the government and card companies will see the most expensive debt paid off more quickly, better repayment plans - but only for new customers - a ban on credit limit and rate increases for people at risk of financial difficulty and a right to 60 days to reject interest rate increases.
The government claims the new rights will save consumers almost £300 million a year. Making the announcement prime minister Gordon Brown said today that the new rights for Britain's 30 million credit card users will "save consumers millions of pounds and give people more control over their finances".
The PM said: "Step by step, we are reinventing the financial services industry after the global financial crisis and moving the balance of power back towards consumers. These new rights will put an end to the irresponsible lending practices that people have been most concerned about, and help cut the cost of borrowing."
The changes will mean payments will go towards debt with the highest interest rates first, reversing the industry practice that prevented consumers clearing their most expensive debt until after they had paid off debt at lower rates, including zero per cent balance transfers.
The five new rights for credit card users agreed by the Department for Business, Innovation and Skills are:
- Right to repay: consumers' repayments will always be put against the highest rate debt first. For consumers opening new accounts the minimum payment will always cover at least interest, fees and charges, plus one per cent of the principal to encourage better repayment practice.
- Right to control: consumers will have the right to choose not to receive credit limit increases in future and the right to reduce their limit at any time; and consumers will have better automated payment options. Consumers will be able to do both of these online.
- Right to reject: consumers will be given more time to reject increases in their interest rate or their credit limit.
- Right to information: consumers at risk of financial difficulties will be given guidance on the consequences of paying back too little; and all consumers will be given clear information on increases in their interest rate or their credit limit including the right to reject.
- Right to compare: consumers will have an annual statement that allows for easy cost comparison with other providers.
Which? chief executive, Peter Vicary-Smith commented after the announcement: "The government's plans to enable credit card users to pay off their most expensive debt first are a move in the right direction, but there is still more to be done to ensure vulnerable consumers are protected.
"It's now time for industry to step up to the challenge and offer credit card users clearer and fairer terms and conditions, and weed out irresponsible lending practices."
While Fiona Hoyle, head of consumer finance at the Finance & Leasing Association (FLA), said: "Today's package of measures builds on the consumer benefits introduced by card companies following the 2008 Consumer Credit Summit. We support measures which help customers get the most out of their cards.
"But it's also important to avoid unintended consequences in a rush to make changes, so we will continue to work with Government as these new benefits are introduced over the forthcoming months to ensure smooth implementation."