The UK Cards Association (UKCA) yesterday sent a response to a consultation document by the Department for Business, Innovation and Skills. The consultation document was entitled "Review of the regulation of Credit and Store Cards".
This may sound long winded, but the report, and subsequent reply hold some very important proposals for Credit Card customers, whether they are involved in a debt management plan or not.
The UKCA replied to all four points discussed in the report, and gave some encouraging answers.
The four main points were:
- Allocation of payments to credit card debt
- Unsolicited credit limit increases
- Minimum repayments
- Repricing of existing credit card debt.
The UKCA responded with pledges to ensure an imporvement on all four points.
Allocation of Payments to Credit Card Debt
The UKCA has proposed that any payment towards credit card debts above the minimum payment be directed towards the most expensive debt first.
For example, currently a credit card company can make the payment towards a 0% APR part of the debt first, letting the portion of the debt that has a high interest rate (say 14.9% APR) increase. This would mean that the total debt may not decrease at the highest rate possible.
The new proposals would put an end to this, and hopefully decrease the number sof people looking for advice on debt managment plans.
Unsolicited Credit Limit Increases
At the moment, a credit card company can increase your credit limit without telling you. "But that sounds good to me!" I hear you say. Unfortunately not.
There are many cases where the customer has been struggling with their debts, and the increase in their credit limit has encouraged them to 'rob Peter to pay Paul'. This is a common problem that we have found among people asking for debt advice, and we call them 'revolvers'. The customer pays off one debt with another and their debt snowballs!
The new proposals would again put a stop to this practice and hopefully reduce the number of revolvers! Customers will be offered a 30-day opt-out period for any credit limit increase.
Minimum Repayments
Paying off your credit card debts with the minimum payments is expensive and long winded. Credit Card companies don't like telling you this because it increases their income. Under new proposals, the credit card companies will have to tell you this as well! Making payments above the minimum payment will make a bigger impact on reducing your debt. If you are struggling to make the minimum payments then contact MRA debt help and one of our debt counsellors can give you free debt help on the most suitable way out of debt for you.
Repricing of existing credit card debts
Some customers, even those with an enviable credit rating and payment history, have found that they have had their interest rates hiked up - even though the base rate has dropped! Under the new proposals, Credit Card companies will not be able to do this.
Hopefully these proposals will make 2010 alot easier for customers on the cusp of needing a debt management plan!
Leave a comment