Credit card industry unhappy with government’s plans

The UK credit card industry tried to pour cold water over plans to curb lenders’ activities.

The proposals put forward by the Government include preventing credit card firms from being able to change interest rates on existing debts while allowing the more expensive debts to be given priority when making payments.

However, a trade body – the UK Cards Association, has claimed that these changes would cause more people to fall into financial difficulty.

In the UK alone, 30 million of us hold around 66 million credit cards.

According to the industry 62% of all adults in the UK had at least one credit card, but there had been a “gentle decline” in borrowing on these cards over the last 5 years.

Despite growing caution from lenders about who is approved for a card, the government is pushing to outlaw some practices that it deems as unfair and has warned the industry to “clean up its act”.

It is still awaiting responses to previous proposals published in October, which included:

  • changing the order in which debt is paid, allowing the most expensive debts to take priority, such as cash advances, enabling these to be cleared first
  • increasing the minimum monthly repayment amount tin order to speed up the rate of repayment, effectively encouraging debts to be cleared faster
  • making it illegal for providers to raise borrowers’ credit limits without their consent
  • restricting or banning increases in interest rates on existing debts.

The proposals come after new practices aimed at the credit card industry were brought in during 2009 as an attempt to bringing more transparency for customers through clearer terms and conditions.

But the industry showed a strident response regarding the latest plans through a 230-page report, detailing claims that customers would fail to benefit from many of the planned changes.

Melanie Johnson, a former Labour MP who chairs the UK Cards Association said: “These options would reduce competition within the industry.

“They would also have far-reaching consequences for customers and lenders alike and would change the basic ‘deal’ offered by lenders to their customers and lead to increased financial difficulties for many and to more defaults.”

The association has put forward its own version of the proposed package which it claims will protect vulnerable customers, cost the industry £250m a year.

One change it did agree with is how people paying off their credit cards should have the most expensive debt cleared first.

Insolvency experts have urged for the rules to be tightened up around who is eligible to sell store cards – a separate issue covered in the government review.

Trade body R3 said shop staff that have not received the correct financial training should not be allowed to sell store credit cards.

“It is frankly irresponsible to sell credit over the shop counter as though it is no more important than buying a sandwich,” said R3 President Peter Sargent.

“Without proper training, shop assistants are inappropriately qualified to understand the consequences of what they are selling and often commission-driven. While these cards are presented as innocuous, they can lure vulnerable people into debt.”

All responses regarding the new proposals are currently being considered by the Department for Business.

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