The Government has announced significant changes to how credit cards work, to make them cheaper and give consumers more autonomy over their finances.
New rights for credit card customers, announced by Gordon Brown, will save consumers millions of pounds, he said, through negotiations with credit card providers.
The new rules will include changing the priority with which credit card companies clear a cardholders debt. Currently, many credit card providers will put payments towards the cheapest debt first, such as zero per cent balance transfers, before using it to clear more expensive debt such as cash withdrawals.
Under the new rules, compiled from consumer suggestions as part of a Government survey, customers' payments will go towards clearing the most expensive debt first.
There will also be a ban on increasing the credit limit or interest rate for customers who are at risk of financial difficulty, and a right of 60 days to reject the rate increase to give customers time to move to another provider if they so wish.
Commenting on the new rules, Gordon Brown said: "Step by step, we are reinventing the financial services industry after the global financial crisis and moving the balance of power back towards consumers. These new rights will put an end to the irresponsible lending practices that people have been most concerned about, and help cut the cost of borrowing."
The Prime Minister hopes that the new rules will benefit the UK's 30 million credit card users, saving them almost £300million a year, while one industry forecast predicts that consumers look set to benefit by savings of around £500million.
As part of the Government's initiative to reduce consumer debt and improve the way it is dealt with, the rules will also see every credit card provider offer online access to all consumers, for £2 or free of charge from June 2010, and credit card providers of will be obliged to consider freezing interest rates and charges and accepting token payments from customers who suffer a sudden drop in income.
Credit card users also have the right to choose not to receive credit limit increases and to reduce their limit at any time; consumers will be given more information about the consequences of only paying the minimum off their balance each month; and they will receive annual statements about the cost of their card to make it easier to compare credit cards from other providers.
Consumer watchdog Which? says that the credit card plans are 'a step in the right direction.'
Peter Vicary-Smith, chief executive of Which?, says: "The Government's plans to enable credit card users to pay off their most expensive debt first are a move in the right direction, but there is still more to be done to ensure vulnerable consumers are protected.
"It's now time for industry to step up to the challenge and offer credit card users clearer and fairer terms and conditions, and weed out irresponsible lending practices."
© Fair Investment Company Ltd