It seems that some companies are making New Year’s resolutions a bit early!
Credit card firms have agreed to treat us all a bit better!
Credit card firms have pledged not to increase interest rates for at least a year after we sign up for a credit card after a Government crackdown on their lending practice.
The UK’s biggest credit card and store card companies have signed up to a new set of principles to ensure that 30.8 million of us are treated more fairly.
From January 1 2009, we will be given at least 30 days' warning of any interest rate increases.
The credit card companies will also be banned from raising interest rates in the first year that a card is issued and they will only be able to review interest rates on a six-month basis.
Malcolm Hurlston, of the Consumer Credit Counselling Service (CCCS), a debt charity, said that it is was “regrettable but inevitable” that some borrowers will suffer interest rate increases before January 1.
The new agreement follows a credit card summit last month, which brought together credit card providers, debt charities and government ministers.
The Government had been threatening to refer the credit card industry to the Office for Fair Trading (OFT) if it did not agree to a new code of conduct.
Over the past year, most credit card firms have increased rates despite sharp cuts in the Bank of England base rate. Very few of us have actually benefited from the 2.5% point cut.
We now face an average interest rate of 17.7% on credit cards (more than eight times higher than the base rate) and this is up from 16.6% in 2007.
The Financial Ombudsman Service said that it had received almost 10,000 complaints about credit card charges since January.
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Gareth Thomas, the Consumer Affairs Minister, said:
"I am pleased by the commitments card companies have made. These commitments will help families manage their finances and cope with repaying their debts. 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."
- Rates charged according to risk
Credit card companies argue that interest rates are based on the risk posed by borrowers, which is subject to change. However, the new rules will give us more warning that our rate is about to increase.
Sandra Quinn, of Apacs, said:
“Quite a few companies haven't done any risk-based repricing this year, which suggests that the real gain with these principles will be next year when arguably more risk-based repricing would have been occurring.”
The new principles have been welcomed by debt charities for alleviating the pressure on those of us already struggling with debt.
Credit card companies will freeze interest rates for those who have sought help from debt advisers and will give us the option of converting our debt into a personal loan with an interest rate that is equal or below the rate on our credit card.
Apacs, the UK payment association, estimates that more than 10,000 of us have the interest rates on our cards cards increased every month.
We will also be entitled to cancel a card and pay off debts at their existing rate within a "reasonable period" if credit card firms attempt to subsequently increase rates.
So, what do you make of the new initiatives by the credit card companies?
Do you think they will help?
Claim back your credit card fees here.