Brown takes on credit card 'sharp practices'
Brown promises credit card changes
Monday, 26, Oct 2009 10:48
The government is set to take on credit card and store cards this week, with proposing promising a fairer deal for consumers.
Gordon Brown this weekend hit out at credit card firms that are able to increase interest rates without warning or reasons.
In a podcast, the prime minister said: "Sharp practices by lenders - such as hiking interest rates on existing debts without explanation, sending out unsolicited credit card cheques and raising credit card limits without being asked - should end."
Under the changes, credit card companies will not be able to increase customers' credit limits without a credit check taking place.
Consumers will also be given a 14-day cooling off period in which to step away from a credit card or store card without giving a reason.
Clearer disclosure of fees upfront will also allow customers to compare offers more clearly before signing up.
The move follows similar legislation in the US.
In May, president Barak Obama signed a 'credit card bill of rights' stopping unfair interest rate increases, unfair fee traps on late payments and plainer language on bills.
In November last year, a credit card summit between the industry and the government brought forward a number of short-term measures, including a suspension of debt collection for 30 days where a customer is seeking debt advice from a charity.
Interest rate hikes were also stopped where a consumer has missed two minimum payments.
Increases in interest rates more than once every six months were stopped and in the first 12 months of having a card.
Where interest rates are increased, the credit card companies promised to give users " a reasonable period" to clear the debt or the option of switching to a lower interest rate on a product available elsewhere within the company.
A poll by Moneysupermarket.com released today reveals the extent of confusion over credit card charges.
Two-thirds of credit card users were found not to be aware of the order in which debts are paid off.
The 'repayment hierarchy' on many cards sees the most expensive debts paid off last.
All but two credit card providers - Nationwide and Saga - work on a low-to-high repayment hierarchy - where the cheapest debt is cleared first.
Clare Francis, site editor at moneysupermarket, said: "The current repayments hierarchy system is widely misunderstood by consumers and many end up paying more than they should in interest as a result.
"This goes to show the importance of reading and understanding the terms and conditions before using a credit card so that consumers aren't caught out."