Credit card companies agree to “new fair principles”
After the Office of Fair Trading warned credit card companies about treating customers fairly or facing regulation, the businesses have responded by agreeing to a list of new fair principles with the Government.From the 1st of January 2009, lenders have committed to not raising interest rates less than 12 months after a credit card has been taken out. Even after those 12 months are up, rates can only be raised every six months thereafter.
Customers will also be advised one month in advance of an interest rate hike so that they can have the option of either closing their account or paying off any remaining debt at the existing rate.
Credit card providers will not be allowed to increase the interest rates of anyone who has failed to make the minimum repayment for more than two months or who already has a repayment plan in place, or is in “serious discussion” with a debt advice group.
Whilst this agreement is most definitely a step in the right direction towards ending overnight interest hikes and other unscrupulous practises, the issue of unreasonably high interest rates is still not being addressed directly. As unsecured loans are seen as much riskier than other forms of borrowing, current interest rates are on average 17.59%, hovering way above the 2% base rate set by the Bank of England.
Consumer Affairs Minister, Gareth Thomas, speaking after the credit card summit, said: “I am pleased by the commitments card companies have made to me today. 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.”
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