Credit card companies have agreed on a set of 'fair principles' set out by the Government to help borrowers struggling with credit card debts.
Two weeks ago, Consumer Affairs Minister Gareth Thomas met with credit card
providers due to the fact the Government was "deeply concerned that borrowers aren't getting a fair deal."
At the time, the companies were given a deadline of a fortnight to report back with a statement of fair principles, with Mr Thomas threatening to involve the Office of Fair Trading if "strong commitments to fairer treatment were not agreed."
Yesterday, the companies agreed to a set of measures which include an option for customers to transfer deals, or freeze the account and pay off debts at the existing interest rate if the company wants to raise its Annual Percentage Rate (APR).
"I am pleased by the commitments card companies have made to me," said Mr Thomas.
"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."
The principles will bring about three main changes for borrowers; firstly, lenders have agreed that instead of simply increasing rates on short notice, they will offer borrowers an alternative of closing their account and paying off their debts at the existing rate of interest instead of just accepting the new rate.
Secondly, the credit card companies
have agreed to give people at least 30 days notice of an increase in their rate and to limit how often they will increase it. And thirdly, credit card providers have agreed that they will not increase rates for customers who've failed to make their minimum payments for two months or more, or if the borrower has sought help from a debt advice
The industry has also agreed to "a breathing space of up to 60 days" to borrowers in difficulty.
"This means they won't chase a debt where somebody is trying to get back on their feet and to agree a repayment plan with the help of a not-for-profit debt advice agency," said Mr Thomas.
The Government has urged borrowers who have already experienced hikes to complain to their credit card provider if they felt their rate increase was unfair, and if they are unhappy with the handling of their complaint, to take their case to the Financial Ombudsman Service
The fair principles will come into force on January 1 2009.
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