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Credit card issuers to be reined in
David Black, banking specialist
Credit card cheques and the raising of credit limits without cardholders' prior agreement will become a thing of the past when proposals in a new White Paper comes into force.
The Government has been under pressure from consumer groups to act on the £54.4bn of credit card debt racked up by consumers in recent years, which many are struggling to service in the downturn.
In March, the Goverment announced plans to introduce legislation against the unsolicited raising of credit limits and the issuance of blank credit card cheques which allow consumers to make payments by cheque which are paid for on their cards.
Credit card cheque are an expensive way of borrowing as they incur handling fees and interest starts to clock up immediately. In addition, they don't provide the same level of protection for customers as payments made by credit card.
In the last year, customers of Alliance & Leicester, Barclaycard, Virgin, Halifax, Abbey, Bank of Scotland, Capital One and J Sainsbury have received unsolicited cheques, a practice which will be banned under the proposals.
Another area of concern is that 5.7 million individuals had their borrowing limits raised last year without their prior consent, whereas less than 3% of the UK's 30m cardholders had their spending limit reduced last year.
The average credit limit rose by £1,538 per cardholder to £6,667 last year, increasing their potential interest bill to £1,040 a year.
Cardholders with Barclaycard, Alliance & Leicester, Lloyds Banking Group and Royal Bank of Scotland have had their spending limits increased in the last year without their prior agreement.
Review of charges and fees The Government is to review card terms and conditions, in particular whether card issuers should be banned from raising interest rates on existing debt and from reducing minimum monthly repayments.
Consumer groups have voiced concern about card issuers, such as Barclaycard, which have reduced minimum monthly repayments which, if maintained by the cardholder, can lead to decades of endebtness.
There are also plans for a Consumer Advocate, who would take cases of national importance to court on behalf of consumer groups seeking refunds and compensation.
The proposals suggest that aggrieved cardholders with complaints against card issuers will be able to join class actions led by the Consumer Advocate.
Those in receipt of credit card cheques on a regular basis will be pleased to hear they will be banned in due course. They are effectively a cash advance which incur fees and are a very expensive way of borrowing as there is no interest free period.
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