Government Negotiates New Card Protection Laws

By Emily Gorton Staff Writer Thursday, 18 March 2010

In Brief

There are 30 million UK credit card customers.

62% of all UK adults have at least one credit card.

There are 58 million credit cards overall.

So the scheme really will have a huge, nationwide impact.

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THE details of the Government's long-awaited credit card crackdown were announced this week.

The Credit and Store Card Review was launched last year following concerns that credit card providers were allowing their consumers to spiral into ever-increasing amounts of personal debt.

The new laws are designed to stop lenders profiteering by imposing conditions which the customer was never aware of.

Although the government's plans were originally a lot stricter on credit card providers - the UK Cards Association managed to negotiate a compromise with their 230-page defence - the watered-down version still offers significant improvements for credit card holders.

The changes will be imposed in February of next year at the latest and could save consumers £300 million a year from then on.

The agreement gives customers five new rights:

1. Right to Repay

What has been considered the most important change is that credit card providers will have to allow credit card holders pay off their most expensive debts first.

5,000 members of the public were involved in the review and the majority of these were unaware that they were sneakily being made to pay off their smaller rates first whilst the higher sums accumulated more overall interest.

Nationwide and Saga are the only companies who don't currently impose this unjust order of payments.

Also under 'right to repay' is the rule that the minimum repayment for customers opening new accounts will always cover at least the interest, fees, charges and 1% of the borrowed amount.

This was originally going to affect existing credit cardholders too.

However, Minister Kevin Brennan argued that many are not in the financial position to pay more than the current minimum back and this could just result in more unmanageable debt.

2. Right to Control

Another agreed rule was the customer's right to control their credit limit.

This means that customers can inform credit card providers that they never want their limit to increase and they can also reduce it at any time.

3. Right to Reject

An increase in consumers' control of their credit limits also means that any changes to it can be rejected within 30 days of the change.

Customers also have a 60-day period in which to reject increased interest rates on their existing debt.

If they reject the changes to interest rate, they will have to close their account, but are given a reasonable amount of time to pay off the debt or switch it to another provider.

4. Right to Information

The agreement has also meant that consumers, particularly those with severe financial difficulties, will be given more information and guidance.

The information will include what the consequences of missing repayments will be, whether there are any planned changes to credit limits or interest rates and what the customers' rights are in terms of these changes.

This will mean that even the most vulnerable consumers will be able to keep control over their borrowing.

5. Right to Compare

Finally, credit card providers have been instructed to offer customers the right to compare their credit deal with that of other companies.

They will be issued with an annual statement where all of their various costs for the year are laid out in a simple and easily comparable form.

This will hopefully encourage providers to place the customer and their needs first.

The Reaction

These new agreements have been met with a mixed response, some praising the changes and some condemning them for not being radical enough.

Shadow financial secretary Mark Hoban scoffed that the scheme should have been initiated before.

He went on to say that the Conservative Party have many plans to further protect British consumers, should they win the upcoming election.

The Liberal Democrats have also criticised Labour for their lack of action within this field.

Hopefully these changes are a small step towards consumers being treated fairly as providers work less for profit and more for customer satisfaction.

Although the changes will cost the credit industry £533m over the first two years, 9 million borrowers will save £550m over the same period.

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