Credit card industry overhaul approved

19 March 2010 11:32:42

New credit card laws are to be incorporated this year.

The government confirmed on Monday (March 15th) that five new rights for credit card users will be introduced in the near future. An agreement was struck between the Department for Business, Innovation and Skills, which originally launched a consultation on the measures, and the store and credit card companies represented by the UK Cards Association and the Finance and Leasing Association. So how will the new laws affect the average consumer?

Better protection

The main aim of the review of the credit card industry was to explore the possibility of giving struggling Britons more protection against the backdrop of the economic downturn. Perhaps the most significant overhaul involves allocation of payments, as credit card holders will now see their repayments placed against the most expensive debt first. For new customers, the lowest level of repayment will cover interest, fees and charges at the very least, plus 1% of the principal to encourage better repayment practice.

Meanwhile, individuals will be able to choose not to receive credit limit increases in the future and to reduce their limit at any time. This alteration, known as the 'right to control', will be tied in with provision of more effective automated payment options. It is also strongly linked to the third measure, which will see consumers given more time to reject interest rate or credit limit increases.

Information and comparison

Another element of the new regulations involves financially vulnerable credit card customers being afforded better guidance on the implications of under-paying bills. There will also be a strong emphasis placed on giving such individuals clear information on any interest rate or credit limit hikes and their associated rights. Card companies will be encouraged to work with debt advice agencies to devise innovative and tailored support for their most under-pressure customers. The final change will see Britons given the option to compare credit cards, as all annual statements will now detail offers from other providers.

Easing the pressure

Allocating payments to the most expensive debt should be particularly beneficial to consumers, particularly with banking specialists Defaqto suggesting that 79% of credit cards currently do the exact opposite. However, this should not be seen as a green light to rack up excessive debts. Consumers must take the new laws on board but remember that the same principles governing responsible borrowing apply. The regulations have been implemented to assist cardholders in managing their own credit card debt and repayments in a more efficient and organised manner.

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