Anyone with a credit card
will be happy to know that credit card companies are getting set to offer their customers some breathing space, especially if they are having trouble meeting their repayments. The card companies are issuing a new set of ‘fair principles’ that will have them backing away from raising their interest rates when their customers fall behind their payments. The rules come from pressure from the government to give customers more help, even though one accountancy firm feels that rising costs will lead to new annual fees on all credit cards becoming the norm and not the rare occasion.
The government and the credit card companies
met to discuss the fair principle rules and the credit card companies were given a deadline to commit to a new set of rules. The measures agreed to include an option that customers can take to transfer deals or freeze their accounts in an effort to pay off the debt at the current interest rate if the credit card company wants to raise their APR. One of the reasons behind the new set of rules is because the government is hoping to stop risk based pricing where the credit card companies raise the interest on customers who are at risk of defaulting on their payment.
The credit card companies have also agreed not to raise interest rates if the customer:
The plan went into effect on January 1, 2009
- Has not made the minimum payment for more than two months
- Has already worked out a payment plan
- Is in discussion with a debt advice service
and it includes a pledge from the credit card companies and store card companies not to raise their interest rates during the first 12 months and raise it no more than once every six month afterwards. Customers will be given 30 days notice if their credit card company is going to raise the APR on their card. However currently there is no provision in the new rules that instruct the credit card companies to pass on interest cuts from the Bank of England’s bank rate to their customers. Borrowers may still face increases but they will receive more notice of them before they happen. Finally, they will offer borrowers with major difficulties in paying their bill an additional 60 days to pay their bill.
Consumer Minister Gareth Thomas said, “I recognise that these changes will not be without financial pain for credit card companies, but it was vital that we nipped in the bud the bad practices that were causing real hardship for borrowers.”
Consumer Credit Counseling Service Malcolm Hurlston said, “There is much good news here. By agreeing not to raise interest rates for people struggling to make repayments, credit card companies have taken a significant step and will help ensure bad personal situations are not made worse. However, more still needs be done. It is essential that all credit card companies follow the example of the best and freeze charges, fines and interest on the debts of clients who are on a debt management plan.”