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Credit card proposals could help debt management

19 February 2010 15:51:59

The government is reviewing credit card market regulation. image
The government is reviewing credit card market regulation.
Research conducted by the Post Office last month suggests the government's review of the regulation of credit and store cards is likely to have a significant impact on consumers and their ability to manage their credit card balances.

The third annual Post Office Consumer Credit report found the recession has left millions of people more reliant on credit cards than ever before, with many forced to use the products to fund their way through January.

Almost four in 10 adults were expected to use their credit cards to pay for the purchase of everyday goods such as groceries in the first month of the year.

The figures also show that 45% of credit card holders do not plan on paying their monthly bills in full in 2010, while 6% will only pay the minimum amount.

As a result, many consumers will be hoping that the government's proposed amendments to credit and store card regulations are approved so their chances of effectively managing their credit card balances are improved.

What does the government's review hope to achieve?

Years of easy credit have meant that many consumers have been allowed to build up a significant amount of debt on their credit and store cards which, given the current economic conditions, they look increasingly unlikely to be able to repay in the foreseeable future. As a consequence of this, the government set out to ensure the regulation of the credit and store card market provides consumers with the best deal possible and the fairest chance to pay back their outstanding debts.

What does the government propose?

The government has identified five key areas which it believes need to be reviewed to improve credit and store card market regulation. These are: the allocation of payments, and that they are used to cover the debts with the highest rate of interest; the level of minimum payments and the idea that more should be done to encourage consumers to pay more than the lowest amount possible; the issue of unsolicited limit increases; the re-pricing of existing debt; and improved simplicity and transparency.

What is the likely result?

According to automated contact and resolution services firm Adepta, the proposed changes would have the effect of transferring more power to consumers.

Specifically, the company's CEO Lou Venezia believes individuals will be able to expect improved transparency and security.

Meanwhile, credit card provider Nationwide has backed the move to ensure debts with the highest rates of interest are paid off first as it affords consumers the "fairest" option.

Either way, Andy Love, MP and member of the Treasury Select Committee, believes a change is essential.

"Consumers have the right to expect credit card providers to be clear and fair," he commented.

"A simpler, fairer system is needed. With more and more vulnerable people facing the challenges of debt management, now is the time to ensure this burden is lifted once and for all."

This is particularly true in light of the Post Office data and the extent to which consumers used credit cards to navigate their way through the recession.ADNFCR-2196-ID-19626408-ADNFCR ADNFCR-2196-ID-19464191-ADNFCR

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