New rights and lower costs for credit card users

[Amethyst]

Prime Minister Gordon Brown today announced new rights for Britain's 30 million credit card users that will save consumers millions of pounds and give people more control over their finances.

The new rights were secured in an agreement between the Government and the credit and store card companies negotiated in the light of feedback from thousands of consumers to a Government consultation on credit cards. The key changes will be introduced by the industry this year and given statutory force as soon as possible.



The five new rights for credit card users agreed by the Department for Business, Innovation and Skills with the UK Cards Association and the Finance and Leasing Association (representing store card companies) are:

· Right to repay: consumers’ repayments will always be put against the highest rate debt first. For consumers opening new accounts the minimum payment will always cover at least interest, fees and charges, plus one per cent of the principal to encourage better repayment practice.

· Right to control: consumers will have the right to choose not to receive credit limit increases in future and the right to reduce their limit at any time; and consumers will have better automated payment options. Consumers will be able to do both of these online.

· Right to reject: consumers will be given more time to reject increases in their interest rate or their credit limit.

· Right to information: consumers at risk of financial difficulties will be given guidance on the consequences of paying back too little; and all consumers will be given clear information on increases in their interest rate or their credit limit including the right to reject.

· Right to compare: consumers will have an annual statement that allows for easy cost comparison with other providers.


Other measures designed to encourage responsible borrowing and lending and help people avoid taking on unmanageable debts include:

· The new Consumer Credit Directive regulations and OfT Irresponsible Lending Guidance to be introduced before the summer, requiring lenders to check customers can afford a loan, give clear information on new loans and give a 14-day cooling off period during which new loans can be cancelled. Lenders who fail to comply run the risk of having their licence to lend withdrawn.

· All consumers to have access to their credit records online for £2 or free of charge from June 2010, under a new agreement with the three main credit reference agencies secured by the Department for Business, Innovation and Skills. Access will be free for victims of ID fraud and people receiving debt advice.

· Stronger protections under the Lending Code agreed between the British Bankers Association and the Ministry of Justice, so that lenders consider reducing or freezing interest and charges, and accepting token payments, from people who suffer a sudden income shock.

· For those suffering the most serious financial hardship, proposals by the Department for Work and Pensions to reform the Social Fund, so that it will be more efficient, easier to understand, and families will be given independent money advice to help them manage their debts.


In addition, consumers who are at risk of financial difficulties will be protected through a ban on increases in their credit limit as well as the ban on increases in their interest rate, and card companies will work with debt advice agencies to agree new ways they will provide targeted support to consumers at risk.


The ECCD regulations will come into force in the UK as of 1 February 2011. Lenders will have from April 2010 until 31 January 2011 to comply with the new provisions, but are encouraged to offer consumers the new rights as early as possible.

The Office of Fair Trading’s irresponsible lending guidance for lenders will be published shortly.

The OFT’s review into high cost credit is expected to be published next month.

On March 11, Chancellor of the Exchequer Alistair Darling launched a new free money advice service to be rolled out around the country. The Moneymadeclear service includes a helpline, website and face-to-face advice services, delivered through a range of partners such as Citizens Advice Bureaux and Age Concern. Full details at the HM Treasury website: hm-treasury.gov.uk

Consumers have a statutory right to access their credit reports under the terms of the Consumer Credit Act 1974. The charge under the statutory scheme is £2, covering a proportion of the administration costs.

The OFT's report on the Personal Current Account Market will be released tomorrow.

• Credit card consultation (PDF, 836 Kb)
• Credit card consultation - Equality assessment (PDF, 240 Kb)
• Credit card consultation - Impact Assessment (PDF, 2.9 Mb)

[Amethyst]

Re: New rights and lower costs for credit card users

http://www.bis.gov.uk/creditconsultation/response

EDIT WORKS NOW

[Amethyst]

Re: New rights and lower costs for credit card users

Not sure on this right to reject credit increases - I think they just shouldn't happen without customers requesting it.

Responses to the consultation from industry

3.13 The industry therefore proposes to a strengthened version of the set of
principles discussed with BIS during the summer of 2009 to contain
key commitment including:
 Provide for a 30 day notice period ahead of a limit increase
 Provide clarity on the multiple channels by which the customer can
opt-out
 Provide clarity that the customer can opt-out of an individual
increase and/or permanently using an industry standard document
/ format
 Provide cardholders with a means to decrease their limit without a
need for personal interaction e.g. on-line; automated telephone
 Incorporate an exclusion relating to habitual minimum payers
 Incorporate the three core exclusions as set out in the risk-based
re-pricing principles
 Commitment that customers will not find it difficult to decline the
higher limit

http://www.theukcardsassociation.org...ssociation.pdf

and the Consumers side

Credit card companies frame unsolicited credit increase limits as an earned reward which the customer should feel proud to have earned. Research suggests that the framing of these offers imply trust and suggest loss by non-acceptance9. Any lending should be based on the idea of ‘informed consent’ and engaging the consumer in the decision. Consequently, we fully support the proposals to ban unsolicited credit limit increases (Option 4).
We would go further and suggest that for any credit limit increase to occur, there should be rigorous processes put in place to determine both informed consent and financial capability to manage increased flows of credit. Customers should initiate any raise to their credit limit, should fill in an application form or make an approach to the bank over the phone and also nominate the size of the increase according to the customer’s own assessment of their need up to the maximum assessed according to their credit profile.

http://www.consumerfocus.org.uk/asse...tore-cards.pdf

[enaid]

Re: New rights and lower costs for credit card users

Not sure on this right to reject credit increases - I think they just shouldn't happen without customers requesting it.

Responses to the consultation from industry



http://www.theukcardsassociation.org...ssociation.pdf

and the Consumers side



http://www.consumerfocus.org.uk/asse...tore-cards.pdf

I can understand what you are saying here Ame, but if the lender has to apply for an increase and they get knocked back and then go for another surely this will appear on your credit file and possibly make things worse.

[Amethyst]

Re: New rights and lower costs for credit card users

Documents

• Government response (PDF, 910 Kb)
• Plain English version (PDF, 268 Kb)
• Joint commitment by the Government and card companies (PDF, 113 Kb)
• Economic Impact Assessment (PDF, 1.7 Mb)
• Equality Impact Assessment (PDF, 202 Kb)
• Summary of Responses to Consultation (PDF, 527 Kb)
• Consumer and Store Card Research (PDF, 1.5 Mb)
  The Government commissioned TNS-BMRB to conduct research focusing on: consumers’ current experience of using credit and store cards; how consumers think they would be affected by, and respond to, various options for reform; consumer preferences around trade-offs arising from proposed reforms.
• International Regulatory Research (PDF, 2.4 Mb)
  The Government also commissioned Auriemma Consulting Group to research features of international credit card markets and how they are regulated. A number of markets outside of the UK, particularly the US and Canada, have recently implemented new regulatory proposals related to credit cards. The study provided evidence on: market structure and credit card usage in other countries; regulation and its impact on both industry and consumers.

[Amethyst]

Re: New rights and lower costs for credit card users

NEW RIGHTS FOR CREDIT AND STORE CARD USERS
JOINT COMMITMENT BY THE GOVERNMENT AND CARD COMPANIES

The Government and credit and store card companies have agreed to introduce five new rights for credit and store card users. These are:

• Right to repay: consumers’ repayments will always be put against the highest rate debt first. For consumers opening new accounts the minimum payment will always cover at least interest, fees and charges, plus 1% of the principal to encourage better repayment practice.

• Right to control: consumers will have the right to choose not to receive credit limit increases in future and the right to reduce their limit at any time; and consumers will have better automated payment options. Consumers will have access to these options online.

• Right to reject: consumers will be given more time to reject increases in their interest rate or their credit limit.

• Right to information: consumers at risk of financial difficulties will be given guidance on the consequences of paying back too little; and all consumers will be given clear information on increases in their interest rate or their credit limit, including the right to reject.

• Right to compare: consumers will have an annual statement that allows for easy cost comparison with other providers.

In addition, consumers who are at risk of financial difficulties will be protected through a ban on increases in their credit limit as well as the ban on increases in their interest rate, and card companies will work with debt advice agencies to agree new ways they will provide targeted support to consumers at risk to help improve their situation before they get in too deep.

These new rights, together with the existing right to redress mean a better deal for consumers, giving them improved control of their credit and store card borrowing.
The Government and the card companies have agreed that the key consumer benefits will come into effect by the end of the year. This means that consumers do not have to wait for legislation to be passed to benefit from these measures. These measures are in response to the Government’s recent public consultation on the regulation of credit and store cards.


Right to repay
Consumers’ repayments will always be put against the highest rate debt first. For consumers opening new accounts the minimum payment will always cover at least interest, fees and charges, plus 1% of the principal to encourage better repayment practice.

• Consumers’ monthly payments will always pay off their most expensive card debt first. This fully reverses current widespread practice. Consumers are confused by the current system, and research commissioned by the UK Cards Association found that regardless of the way in which the current way of allocating payments is explained, consumers find it counterintuitive.

• For consumers opening new accounts the minimum payment will always cover at least interest, fees and charges, plus 1% of the principal. This means that some minimum payments on new accounts will be higher in future to ensure that at least 1% of the loan itself is paid off as well as the interest and any fees and charges incurred. US based firms already have to do this in the UK, and this agreement will level the playing field. We want to encourage more responsible borrowing and lending in future, but have seen from the consultation evidence that it could be harmful to apply this increase to existing accounts.


Right to control
Consumers will have the right to control their borrowing limits and how they repay their card debts. And to protect people who are struggling with their debts, card companies will observe a ban on limit increases for people at risk of financial difficulties.

• Consumers will have the right to tell their card company at any time that they want to reduce their current limit. This will be available online or through an automated telephone system so consumers can do so without having to speak to an adviser.

• Consumers will be able to tell their card company at any time that they don’t want to be given limit increases at all in future.

• The Consumer Credit Directive will introduce a new legal requirement to undertake a creditworthiness assessment before offering a significantly higher limit, and The Office of Fair Trading’s new Irresponsible Lending Guidance will expect firms to check that any new limit is affordable. In addition, card companies will observe a ban on limit increases for consumers at risk of financial difficulties. They will work with debt advice agencies to agree how they will identify consumers at risk.

• Consumers will be able set up an automated payment to pay any amount they choose on a regular basis. Previously, automated payment
options for many consumers were limited to paying the full amount each month or the minimum payment. This will be available to all consumers online.


Right to reject
Consumers will be given more time to reject increases in their interest rate or their credit limit.

• Consumers will now have 60 days to tell their card company they want to reject an interest rate increase, close the account, and pay down the outstanding balance at the existing rate. This doubles the time consumers have to consider an interest rate increase and take action. In addition, consumers will be notified at least twice during the 60 days that they have the right to reject and card companies will tell them how much their borrowing will cost at the higher rate so they are able to see the real impact of an interest rate increase when making their decision.

• Consumers will be able to reject any increase in their credit limit at any time. Card companies will make it as easy as possible for people to do so, in particular by automating this process.


Right to information
Consumers will have new rights to information about their card account, tailored to their own personal circumstances.

• A new minimum payments warning communication will be sent to consumers who are using their card in ways which may be putting them at risk of financial difficulties or incurring high levels of interest on their debts, for example making repeated low payments. This will illustrate how their current behaviour is costing them more money and will explain what they can do to improve their situation, including providing details of independent sources of advice and support.

• A new, separate, interest rate increase communication will be sent to consumers facing an interest rate increase at least 30 days before the change. Previously, some lenders only notified consumers through their monthly statement. Consumers will also be reminded after this that they can reject the interest rate increase within 60 days, close the account and pay down the outstanding balance at the existing rate. These communications will explain in clear and simple language how their rate is changing, what it will cost them and that they have a right to reject the new interest rate.

• A new credit limit increase communication will be sent to consumers offered an increase in their credit limit at least 30 days before the change. This will explain in clear and simple language how their limit is changing and what they can do if they wish to reject the new limit. The communication will reassure consumers that their card company will not treat them any differently simply because they have exercised their right to reject a limit increase or reduce their limit.

• Card companies will work with debt advice agencies to agree how they will identify consumers at risk and to ensure that the communications they send out are clear and easy to understand.


Right to compare

Consumers will have a right to be given the tools they need to easily compare the costs of different credit cards and how they could save money by choosing the card best suited to their needs and the way they typically use their card.

• Card companies will work with consumer groups and the Government to develop an annual statement which will give consumers clear information about how much it has cost them to use their card over the last year. This statement will be available electronically so that consumers can easily use this information to compare the cost of their current card with other offers online, in particular through the forthcoming impartial credit card comparison tool on the Moneymadeclear website (Home page : FSA Money made clear
). The statement will be fully tested with consumers to ensure that it is easy to use and understand.


The Government is also making a longer term commitment to place these principles on a statutory footing, taking account of the effectiveness of these voluntary arrangements. This will lock in good practice, and give these new rights the full force of the law.


Department for Business, Innovation and Skills
The UK Cards Association
The Finance and Leasing Association 15 March 2010