In October 2009, the Department for Business, Innovation & Skills (BIS) published a White Paper which was entitled Review of the regulation of credit and store cards: A consultation. In this White Paper the Government set out its vision for a new approach to consumer credit in light of the current economic environment. In its consultation on credit and store card reform, the Government set out some ideas as to how credit and store card regulation could change to secure a better deal for consumers. The consultation on the White Paper closed on 19 January 2010.
The Government has now published its response to the consultation on credit and store cards in a paper entitled Review of the regulation of credit and store cards: Government response to consultation.
The Government has set out five new rights for credit and store card users and has announced that credit and store card lenders have agreed to implement these voluntarily. The five new rights are:
- Right to repay: consumers' repayments will always be put against the highest rate debt first. For consumers opening new accounts the minimum payment will always cover at least interest, fees and charges, plus 1% of the principal to encourage better repayment practice.
- Right to control: consumers will have the right to choose not to receive credit limit increases in the future and the right to reduce their limit at any time; and consumers will have better automated payment options.
- Right to reject: consumers will be given more time to reject increases in their interest rate or their credit limit.
- Right to information: consumers at risk of financial difficulties will be given guidance on the consequences of paying back too little. Consumers will be given clear information about increases in their interest rate or their credit limit, including the right to reject.
- Right to compare: consumers will have an annual statement that allows for easy cost comparison with other providers.
Consumers who are also at risk of financial difficulties will be protected through a ban on increases in their credit limit as well as a ban on increases in their interest rate. Card companies are to work with debt advice agencies to agree new ways in which they will provide targeted support to consumers at risk to help improve their situation before they are in too deep.
The Government and the card companies have agreed that the key consumer benefits will come into effect by the end of the year.