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How the government credit card and store card proposals affect you

a 3D rendering of some credit cards Government gets tough on credit card providers

Do you already have a credit card or perhaps even more than one? Well if so, new rules are being drawn up by the government that may affect you.

In a swathe of wide-ranging measures announced by the government on 27 October, credit and store card companies may soon be forced to give consumers a fairer deal.

Consumer minister, Kevin Brennan has raised concerns about how long it takes consumers to repay their credit and store card debts and says it can take as much as 40 years to pay off a credit card if only the minimum repayment set by the provider is met.

He said: “It is up to consumers what they pay back but I think most consumers are quite shocked when you actually tell them that if you only pay the minimum repayment it could take you up 40 years, much longer than a mortgage to pay off the debt on your credit card.”

“While they [consumers] won’t welcome the idea of paying a bit more back every month, I think that once people realise the facts and see what it means in real terms to pay a little more back, many consumers will feel it is the right thing to do to.”

So what are the proposals?

In summary, there are four main strains:

  • Changing the rules that dictate the order in which debts on a credit card are paid off
  • Raising the minimum monthly repayment level so people pay off their debt faster
  • Banning the practice of increasing credit limits without prior consent
  • Placing restrictions on increasing the interest rate on existing debt

Changing the order in which card debt is paid off

In its credit consultation paper, the government is proposing to change the rules that set the order in which debts built up on a credit card are paid off.

As it stands, most credit card companies make customers pay off the cheapest debt first. So, if you have withdrawn cash from your credit card – which is usually charged at a higher rate than making a transaction on the card – then the card provider would usually use your payments to pay this debt off last.

The government is now seeking to put this right and is considering rules that would mean the most expensive debt is paid off first, which is ultimately in the best interest of the borrower.

Raising the minimum monthly repayment level

According to the government, too many people are just repaying the minimum amount set by credit providers, which in turn means borrowers can be saddled with debt for a long time. The government wants to see people get out of debt quicker and to aid this is considering getting lenders to offer two repayment options.

This could take the form of a second higher minimum monthly payment so debt gets paid off more quickly, but could possibly still allow borrowers to drop to a lesser minimum amount if they were having a financially tough month.

Banning the practice of increasing credit limits without prior consent

Credit card companies can and do increase credit card limits without first getting the consent from the card holder, essentially taking away the control you have over your card debt.

To put a stop to this, there are a few options open to the government, one of which could see it ban credit card providers from giving you a higher limit unless you asked for it. The government could also make the credit card company send you a separate letter when they increase your limit, and force them to give you a clear way of cancelling it.

Placing restrictions on increasing the interest rate on existing debt

From time to time, credit card companies will decide their customers or a group of them need to start paying a different interest rate on their credit cards. The government is worried that credit card companies are increasing interest rates as an easy way to stay in profit during the recession. It is also of the opinion that card companies have not been very good at explaining to customers why they suddenly have to pay increased interest charges on their credit cards.

As a result, it could stipulate that credit card companies only increase their interest rates by a certain amount or even stop them from raising interest rates on the debt consumers already have.

Overall, the government wants credit card companies to be more helpful and one way it thinks they can do that is by giving consumers an annual summary of how they’re doing with their credit card debt. This summary could then allow you work out how to avoid paying too much interest and help you compare your card with other ones to see if you’re getting the best deal.

What should I do now?

If this issue has got you fired up, then we want to know about it. Should credit card providers be forced to be fairer to consumers? Have you been stung by unexpected increases in interest rate charges? Or are you against the government proposals? Whatever your thoughts on this consultation, let the team know.

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Sharon Flaherty

Sharon Flaherty

Sharon Flaherty was editor and head of content at from September 2009 to September 2013. She has contributed to The Financial Times Group, The Times, Daily Express, Guardian and Independent.

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