New rights and lower
costs for credit card users - Embargoed to 0600 Monday March 15 2010
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.
Gordon Brown said:
"Step by step, we are reinventing the financial services
industry after the global financial crisis and moving the balance
of power back towards consumers. These new rights will put an end
to the irresponsible lending practices that people have been most
concerned about, and help cut the cost of borrowing."
The Government’s agreement with the card companies will mean the
most expensive debt is paid off more quickly, better repayment
plans for new customers, a ban on credit limit and rate increases
for people at risk of financial difficulty and a right to 60 days
to reject interest rate increases. The Government estimates the
new rights will save consumers almost £300 million a year and one
industry forecast predicts customers will gain around £500m.
Payments will go towards debt with the highest interest rates
first, reversing the industry practice that prevented consumers
clearing their most expensive debt until after they had paid off
debt at lower rates, including 0 per cent balance transfers.
Consumer Minister Kevin Brennan said:
"This is a big win for consumers and helps to put them
back in the driving seat with their finances. When we asked the
public what changes they wanted to see we discovered most people
did not know the charges worked this way. They thought it was
unfair and confusing, and they naturally wanted to pay off their
most expensive debts first.
"This is a fair framework of rights and rules that makes
sure easy and convenient lending for the majority doesn’t lead to
unmanageable debt for the minority who may be in financial difficulty."
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.
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.
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.
Notes to editors:
1) The joint statement between BIS and the credit and store card
industry, the Government response to its consultation on credit
and store card regulation and supporting documents, including a
Plain English version, are at : http://www.bis.gov.uk/creditconsultation/response
2) The credit and store card review was announced in the Consumer
White Paper published on July 2nd 2009. The Government’s proposals
were open to public consultation from October 2009 to 19 January
2010, attracting almost 5,000 public comments and votes in an
online survey.
3) Government estimates that consumers will gain £296m a year
from changes in the agreement. The savings to individual card
holders depend on how much they owe and repay and for some it
could save hundreds of pounds. Nationwide expects the changes will
give consumers £500m a year and say a typical customer would save
£224 in their first year after transferring £2,020 at 0% (the
average transfer) and making average use and repayments on the card.
4) The credit and store card industry will work with consumer
groups and debt advice agencies to agree how they will identify at
risk consumers who will be protected from increases in their
credit limit or interest rate and to ensure communications are
clear and easy to understand. This detail will be agreed by June
to allow time to make the necessary systems changes.
5) 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.
6) The Ministry of Justice has been working with the British
Bankers’ Association (BBA) and the Consumer Credit Counselling
Service (CCCS), with input from Citizens Advice (CitA) to develop
a new way to help people who suffer an unexpected ‘income shock’
such as redundancy, reduced hours or illness. For further
information on additional measures to help debtors by those
organisations who follow the Lending Code, please contact the
British Banker’s association Press Office on 020 7216 8989 or
Frances Walker, Head of Media and Public Affairs at CCCS, on
077717 88713.
7) The Social Fund Green Paper proposes a package of reforms
designed to create a Fund that: makes it easier for customers to
get one-off or occasional support; provides more support to
frequent users of the Fund to help them tackle the underlying
problems they face; and provides better value for money for the
tax payer by reducing the number of frequent users. Full details
will be available by noon at: www.dwp.gov.uk/consultations/2010/social-fund-reform.shtml
8) The Government is also announcing plans to work with targeted
retail sectors to encourage them to adopt pre-payment protection
for consumers. The Department also intends to consult on specific
regulation in the area of pre-payments.
9) The Office of Fair Trading’s irresponsible lending guidance
for lenders will be published shortly.
10) The OFT’s review into high cost credit is expected to be
published next month.
11) 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
12) 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.
13) The three main credit reference agencies are Experian,
Equifax and CallCredit
14) For information about issues relating to personal credit
reports consumers can contact the Information Commissioner’s
Office at (http://www.ico.gov.uk/) or the
Financial Services Authority’s Moneymadeclear website http://www.moneymadeclear.fsa.gov.uk/
Department for Business, Innovation &
Skills
The Department for Business, Innovation and Skills (BIS) is
building a dynamic and competitive UK economy by: creating the
conditions for business success; promoting innovation, enterprise
and science; and giving everyone the skills and opportunities to
succeed. To achieve this it will foster world-class universities
and promote an open global economy. BIS - Investing in our future.
Contact Helen Cook: 020 7215 6963 or Helen.Cook@bis.gsi.gov.uk
Public enquiries +44 (0)20 7215 5000
Textphone +44 (0)20
7215 6740 (for those with hearing impairment) |
Press Office
fax +44 (0)20 7222 4382
www.bis.gov.uk
Contacts:
BIS Press Office
NDS.BIS@coi.gsi.gov.uk