Proposed credit card restrictions welcome but don’t go far enough

18 March 2009 / by Rachel Mason
The Government is planning to crack down on the credit card industry in an attempt to help people avoid getting themselves into debt.

Speaking to consumer groups and money advice agencies yesterday, consumer affairs minister Gareth Thomas announced that the Government would be introducing legislation to stop credit card companies from raising the credit limits on customers' cards when it has not been asked for.

Mr Thomas also said that he would be looking to ban credit card providers from sending out credit card cheques to customers who had not requested them.

"The Government will stop lenders from raising credit card borrowing limits where customer have not requested the increase, and it will end the practice of firms sending unsolicited credit card cheques. The Government will legislate at the earliest opportunity," he said.

Mr Thomas said the move was in response to the fact that many people are already struggling to stay on top of their bills and pay their debts, and that temptations like higher credit card limits only encourage those who are in difficulty to get themselves into even more financial trouble.

Currently, Brits owe a collective £53billion in credit card debt, and this figure is only set to rise; Mr Thomas says it is vital that consumers are protected.

"We are taking action to ensure consumers are treated fairly and to put them back in control of their finances," he said.

The proposals have been welcomed by consumer groups; Peter Vicary-Smith, chief executive at Which? says credit card companies have been allowed to get away with encouraging people to spend more than they can afford for "far too long."

"Sending people unsolicited credit card cheques and extending their credit limits without being asked, in the hope of tempting them to overspend, is not just irresponsible - it's immoral," he said.

"Stamping out these toxic credit practices is a clear victory for consumers. After six years of Which? campaigning against unsolicited credit card cheques, it's heartening to hear that the Government will now act.

"If the Government moves quickly to stamp out these temptation tactics, it will send a clear message that there is no going back to the irresponsible lending of the past."

But Peter Harrison, credit card expert at says although the proposals are a step in the right direction, the Government has "really missed the point," and that if ministers actually wanted to make a substantial difference to credit card lending practices they would insist that payments made by people were assigned to the highest interest debt first and that people weren't allowed to exceed their credit limit.

"At present, most providers assign payments to the lowest interest debt initially. As for credit limits, people are generally allowed to exceed their limit once, which means they are charged a £12 fee and lose any zero per cent offers they might be on. Each of these slips by a person can cost them hundreds of pounds in interest," he said.

"Welcome though it is, this Government crackdown will only make a minor difference - rather than the major steps it could take by insisting on two simple changes."

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