Surprise credit card interest rate hikes banned
SHOCK interest rate hikes on credit card accounts could now be over after the Government agreed new rules on risk-based re-pricing with card providers.
Concern has long been growing that "fair practice" and "fair treatment of customers" rules are no longer working in consumers' favour when it comes to providers making changes to interest rates.
Those concerns led the Government to step in and hold a meeting between business secretary Lord Mandelson and the credit card companies last Friday.
The meeting agreed a number of fair principles for the implementation of rate hikes under the threat that attempts to prolong the process of negotiation would lead to the Office of Fair Trading being bought in to investigate the credit card industry's practices.
As a result of the meeting, credit card companies have pledged to:
- no longer increase interest rates on customer credit card accounts overnight by offering a fair warning, at least 30 days notice, of interest rate increases
- Offer an initial 12-month hold on new accounts - customer's interest rates can't be increased in the first six months of them holding the account. And finally
- A customer's interest rate can only be reviewed once every six months
The credit card companies have also agreed to look more closely at a package of measures designed to assist borrowers who are facing repayment difficulties.
It's thought that those proposals could lead to the development of an instant agreement which would offer customers working with debt advice agencies a draft repayment plan and a 30-day pause in their repayment schedule.
See our FAQ on dealing with rate increases for more in-depth information.
Welcomed by consumer groups
The change in the rules - even if it is, at this stage, not a fully realised change - has been welcomed by consumer groups long concerned and angered at the effects of such interest rate increases.
The decision to keep the interest rate on credit cards and store cards static for the first 12 months following the opening of an account, for example, will come as a relief to many concerned that consumers are simply not getting what they signed up for when they apply for a credit card.
Thereafter, interest rates will be reviewed not more than every 6 months, bringing relief to campaigners on consumers' behalf in the longer term too.
This is not the first time that consumer groups have hit out at providers. We've seen a similar fight to offer credit card holders the interest rates they're actually advertised by providers, for example, and to encourage providers to properly advertise rates for cash withdrawals too.
Following the pledge from the credit card companies the Consumer Affairs Minister, Gareth Thomas, said: "I am pleased by the commitments card companies have made to me today."
"I recognise that these changes will not be without financial pain for credit card companies, but it was vital that we nipped in the bud the bad practices that were causing real hardship for borrowers. These commitments will help families manage their finances and cope with repaying their debts."