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Ban on credit card 'dirty tricks' to stop family debt soaring
Sri Carmichael, Consumer Affairs Reporter02.07.09
A crackdown on "dirty tricks" used by credit card companies to entice customers to rack up unmanageable debts was announced by the Government today.
Lenders face being banned from raising interest rates on existing debts without warning.
Banks will also be stopped from increasing credit card borrowing limits without a user's permission.
Under today's Consumer White Paper banks could be forced to increase the minimum amount borrowers must pay back each month in order to prevent their debts from spiralling.
Business Secretary Lord Mandelson published the plans to promote more responsible borrowing and lending.
The average credit card bill currently demands a monthly minimum payment of just two per cent of the balance.
Debt charities warn that a £2,000 credit card debt would typically take 20 years to pay off if the minimum payment was made each month.
The Government will introduce legislation in the autumn preventing lenders sending out unsolicited credit card cheques, which have punitive interest rates and handling fees. Ministers could also demand that lenders let consumers pay off the most expensive debt on their card first. At the moment repayments often go towards the cheapest debt, such as zero per cent transfers instead of pricey cash advances.
The moves will be welcomed by consumer groups who have warned that credit card companies are employing practices that push vulnerable people into more debt than they intended.
Families in London are increasingly turning to credit cards to make ends meet during the recession.
Ministers are fine-tuning reforms over the summer and a firm action plan is expected in the autumn.
Other measures in the White Paper include the appointment of a "consumer advocate" to champion customers' rights, new "Asbo-style" powers for courts to ban persistent rogue traders and specialist teams to tackle internet scams.
The Office of Fair Trading will review the market for pay-day loans and door-step lending, for which APR is typically more than 50 per cent.
In the past year, 5.7 million people in the UK received a boost to their credit card limit without their consent, according to financial comparison website uSwitch.com.
On average the limit was raised by £1,538.
More than three million consumers are making just the minimum monthly repayment on their credit card, racking up an average of £290 extra interest each a year.
Louise Bond, personal finance expert at uSwitch.com, said: "It is a breath of fresh air to see that at last the Government is taking the credit card industry to task, following closely in the footsteps of the US.
"Providers are cashing in on consumers who are struggling to make ends meet and are forced to use facilities such as credit card cash withdrawals which levy charges of around 30 per cent APR."
Reader views (9)
Roz - That's what pre-arranged overdrafts are for. They give you a little buffer at a (comparatively) low cost. If you have such a poor grip of your finances that you don't know when you need to stop spending... then that may well be the source of your problems.
- Mark Lee, Vauxhall
Walked into my local post office just to buy a stamp and a member of staff approached me, very surreptitiously, about whether I would like a credit card.
She knew nothing about me, whether I was employed or not, in debt to the tune of thousands, but still offered me credit?
Not a responsible approach to take by the post office I thought.
- Frank, Home Counties, England.
Perhaps it would be easier for people to take IQ tests before getting credit cards? Who the hell has ever used a credit card cheque?
- Bob, Cheam
Not just credit-cards: debit cards, too! High Street banks have the ability to switch off a card when there are no longer funds in the account - yet they don't! Loads of people have accidently gone overdrawn by a few pounds for a couple of days believing funds were sufficient and then when they've realised their error they find they owe 'charges' to the bank: charges which are completely disproportionate to the inconvenience to the bank, too.
Daylight, lawful 'robbery' - but then, it's not so very different to how things work at Westminster: cause or effect?
- Roz, France
There should be law to stop all unsolicited applications for credit cards with clear regulatory controls on raising interest rates and charges.
Anyone who spents beyond their means have only themselves to blame.
- Max, Isleworth
The newspapers have been full of stories detailing the amount of personal debt that the UK has racked up since 2000. Why has it taken the government 9 years to work out what the cause of this problem is?
- Nobby Clark, Perth, the Scottish one
Too little too late. People should take more responsibility and manage their financial affairs prudently.
I also firmly believe that, aside from a mortgage on your primary home, no one should be allowed to accumulate a debt greater than 20% of their total income. So before anyone can get a new credit card or loan, the company concerned should have to carry out such a check and ensure you are not at your limit or likely to break that limit.
- Scott, London
All unsolicited applications for credit cards, loans, insurance and other financial products should stop at once. They usually arrive with one's name and address and have to be shredded to stop fraudulent use of the details and I am sure they are a contributing factor to identity theft. It is an absolutely nuisance and waste of paper.
- Patricia, LONDON
The credit card companies will just find a new angle to rob you from.
- Dom, London
