Credit card industry proposes changes to help consumers manage debt

The UK Cards Association, an umbrella organisation of the UK credit card industry, has submitted several proposals aimed at giving consumers better debt management options. The suggestions were in response to the Department for Business, Innovation & Skills consultation “Review of the Regulation of Credit and Store Cards.”

UK Cards Association chairman Melanie Johnson said, “The credit card industry is keen to give consumers as much control of their finances as possible. The package of changes we are proposing to BIS is based on evidence from a number of highly-regarded independent sources. Our approach will deliver big improvements to customers without smothering competition and choice, which customers value and gain significant benefit from. It will also maintain features which are vital to lenders being able to lend responsibly.”

The proposals include important enhancements for customers, whilst preserving the interests of the cardholders, and enjoy the benefits and protection the credit cards provide.

Key features of the proposed package includes:

• An industry-wide change to alter allocation of payments practices, making payments above the minimum payment are allocated to the most expensive debt first. Lenders can decide the minimum amount. This proposal is seen to benefit 25 percent of all credit card accounts.
• Ban unsolicited credit limit increases for customers already facing debt problems. Any customer offered a credit limit increase will be offered a new 30-day notice period and simple means of ‘opting-out’.
• Minimum payments – card companies will contact customer who repeatedly only makes the minimum repayment on their card and explain that this is the most expensive way of paying off a debt.
• Re-pricing of existing debt – the industry will produce a consumer leaflet to explain the rationale behind the practice known as ‘risk-based re-pricing’, building on work which saw a set of industry principles implemented on 1 January 2009.
• Continue working with government to identify opportunities to make further transparency improvements and to simplify information for our customers.

According to the association, the proposals were based from extensive independent research conducted by Oxera, Argus and GfK.

There are at least 30.2 million credit cardholders in the UK, 60 percent of whom pay off their bill in full every month.

But there had been a marked shift in the way people use their credit cards in the past five years. Customers are using their credit cards less and credit card debt reached a five-year low in 200 despite the economic downturn.