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"More Protection For Credit Card Borrowers But With A Catch"

By admin | July 20th, 2009 | Credit Cards, Featured

With a consumer white paper released to aiming to protect consumers by curbing reckless borrowing and spending, and a white paper designed to protect Britain from a repeat of the current financial crises with tougher legislation for banks, it seems the Government is finally recognising the need to rein in on sneaky, unfair tactics used by lenders.

So what are the measures being employed against unscrupulous lenders? Amongst the wide-ranging reforms are:

Ban on negative hierarchy

There will be a consult on a ban on negative payment hierarchies. This is when payments on a card go towards paying off the cheapest debt first, keeping cardholders paying the maximum amount of interest for the life of their balance.

A horrible trick employed by almost every credit card issuer except Nationwide building society, who estimate that it costs cardholders around £500million every year in EXTRA interest. It’s a practise which has come up for fierce criticism over the last few years, and it seems the Government has finally listened.

Ban on unsolicited credit card cheques

Lenders will no longer be able to send out credit card cheques when they are not requested. Credit card cheques work like personal cheques and seem like ‘easy credit’, with the amount being added to the card balance. But with high interest (no interest-free period) and a handling fee of around 2%, they are an expensive option and often take advantage of those who can afford it least.

Ban on unsolicited credit increases

There will be a consult on a ban on unsolicited credit limit increases. This is a big one which preys on the vulnerable and people going through desperate times.

Companies will no longer be able to increase credit limits without a specific request from the customer so the temptation of unused credit at one’s fingertips will be removed and consumers will have to apply for more credit- meaning more rational thought would be applied by the customer with regards to budgeting and affordability- and cheaper options. A survey shows that in the past year, one in five people have had their credit limit increased without their consent.

Curbs on loans with extortionate interest rates

This includes doorstep and much maligned ‘payday’ loans. Rates on these loans can reach a staggering 1800% APR! Again, they are aimed at the more vulnerable who can least afford it. Some payday loans don’t even require a credit check.

Unsecured borrowing in the UK has soared during the past decade, with consumers collectively owing more than £230 billion on credit and store cards, overdrafts and loans. Today, we Brits have a unbelievable £232.7 billion of non-mortgage debt, spread across overdrafts, car and personal loans, and store and credit cards. That comes to over £9,300 for each of the UK’s 25 million households

So these measures may be a case of ‘better late than never’ but should these measures all be imposed, the increased protection to consumers will improve the lives of tens of millions of borrowers, especially the most vulnerable.

So, the catch? When these proposals become law, credit card issuers will find their income dramatically reduced, meaning they will be forced to cut costs and seek out new revenue streams. It may mean the death of the 0% balance transfer.

Tags: interest rates, Credit Cards, credit card borrowers

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