Overnight interest hikes on their customers, will be a thing of the past, as credit card companies have agreed to end this practice. A new set of fair principles have been agreed with Government by card issuers. They include giving more breathing space to customers struggling with their debts and giving borrowers more warnings about rate increases.
The consumer affairs minister, held a credit card summit where he warned credit card providers that if they did not make a strong commitment to treating customers fairly, then he would ask the Office of fair trading to investigate the sector.
One of the original issues about which the government expressed concern, was credit card companies not passing on interest rate cuts to their customers. They have stopped short of insisting on it but instead said they will monitor the situation.
An agreement has been reached by lenders not to increase interest rates within 12 months of a credit card or store card being taken out. They will also not increase them more than every six months after this period.
A notice period of at least 30 days, of an interest rate rise, will also be given to customers. They will also be given the option of closing their account altogether and paying off the debt at the existing rate if they wish to do so.
Those who have sought help from a debt advice agency or have fallen behind on repayments will also not have increases in their interest rates by providers. A pledge to give people in financial difficulties 60 days' breathing space in which they can agree a repayment plan with a debt advice charity, before they begin to chase the outstanding sums, has also been agreed.
Mr T said: 'I am pleased by the commitments card companies have made to me. 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.'
Borrowers who had already experienced a hike in their interest rate, in some cases as high as 10 per cent, should complain to their card provider if they think the rise is unfair, says the government. If they are then not happy with their lenders' response they should then go to the Financial Ombudsman Service.
The new principles came into effect on January 1 and the Government has asked the OFT to monitor the industry's progress on implementing them. The chairman of the Consumer Credit Counselling Service, said: 'There is much good news here. By agreeing not to raise interest rates for people struggling to make repayments, credit card companies have taken a significant step and will help ensure bad personal situations are not made worse.'
'However more still needs be done. It is essential that all credit card companies follow the example of the best and freeze charges, fines and interest on the debts of clients who are on a debt management plan with CCCS or another non-profit agency.'
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