Tougher credit card rules on way as companies warned

The Government has launched a consultation document on changes to current industry practices to give consumers a better deal.

Credit and store card firms usually make consumers pay off the cheapest debt first, while more expensive debt - such as cash withdrawn on a credit card - is left until last.

The Government is considering rules which would mean the most expensive debt is paid off first, as well as raising minimum monthly repayments from their current low level to avoid customers taking decades to clear borrowings.

Consumer Minister Kevin Brennan said: "Card companies have to get their act together and do more for consumers.

"My opinion is clear, the current relationship between card companies and consumers cannot go unchallenged. We need to put the customer back in the driving seat."

Other moves being considered by ministers are a ban on increasing credit limits without prior consent - possibly by forcing consumers to opt-in - and restrictions on rate hikes on existing debts without proper explanation.

Mr Brennan added: "It is not acceptable for card companies to impose complex and confusing terms and conditions that can leave people baffled, or to increase interest rates without a proper explanation.

"Consumers have a real responsibility to manage their finances properly, but they also have a right to clear information to enable them to do that. Consumers should not feel each month as if they've been exploited or disadvantaged."

The Government said in July's Consumer White Paper that it would tackle the way credit card repayment policies could lead to bigger than expected interest charges.

It is already legislating to ban unsolicited credit card cheques in November. The current consultation will run until January 19.

Fiona Hoyle, head of consumer finance at the Finance and Leasing Association, said: "Many of the measures proposed today by the Government have been under discussion with the industry for some time and reflect rapidly-changing market conditions.

"The industry's commitment to helping consumers is shown by the many measures already taken in recent months.

"But as our statistics today show, credit spending is still declining. We must avoid the risk of reducing further the availability of credit or increasing the potential for over-indebtedness.

"More regulation of the wrong kind risks further shrinkage. For many people the primary concern will be getting access to affordable credit. We must do nothing to make that more difficult.

"We will be working closely with the Government on the practical implications of their proposals to ensure a fair deal for all."