moneysupermarket calls for fairer deal on credit cards

moneysupermarket.com (MONY.L) has submitted its response to the Department for Business, Innovation and Skills' (BIS) consultation on credit cards, calling for a fairer deal for consumers, with clearer terms and conditions when it comes to accessing and using credit cards.

Tobias Van Der Meer, managing director at moneysupermarket.com, said; "Credit cards are an important means for consumers to budget and spread the cost of purchases.  They provide a flexible and easy to use way of accessing credit in an environment where access to other forms of credit has become more difficult and, for many customers impossible.  Credit card customers also benefit from useful protection in the event of a retailer going out of business.

"It is important to remember that the majority of credit card customers don't pay interest on their balance because they usually pay it off in full every month.  Only about one in three credit card customers actually use their card to borrow money.  Even so it is vital that consumers are empowered and educated to use this form of credit responsibly and to manage their finances efficiently.  To this extent comparison sites have an important role to play in ensuring consumers are getting the best deal.  We believe that transparency is essential to making this market work effectively and fairly for consumers so they clearly understand the pros and cons of their product."

Summary of moneysupermarket.com's response to the consultation

Allocation of payments - moneysupermarket.com believes it would be fairer to consumers, if their most expensive debt was paid off first.  Our own consumer research shows that almost two-thirds of consumers don't realise that the cheapest debt is paid off first on the majority of credit cards. The negative allocation of payments actually reduces the flexibility of credit cards for customers - as it means that it makes sense to hold two cards - one for balance transfers and one for purchases.

Minimum payments - moneysupermarket.com does not support a mandatory increase in minimum payments as this could drive many customers into difficulty. Consumers should be empowered to manage their own finances, however the consequences of paying just the minimum payment should be made clearer.  The introduction of a recommended minimum payment would be advantageous to consumers.

Credit Limit increases - moneysupermarket.com believes consumers should be put in control of whether they need access to additional credit so should be given the option upfront to be considered for future increases.  moneysupermarket.com research conducted for The Department of BIS, has shown whilst 43 per cent of credit card users would be happy to have their limit increased out of the blue, 50 per cent would not be happy.

Re-pricing of debt - moneysupermarket.com believes that re-pricing is unfair for consumers.  In the case of ‘risk based' re-pricing consumers are not aware how their behaviour impacts their risk profile so they are unable to modify how they run their account.

Customers should be given sufficient information on why they are in danger of being re-priced and time to modify their behaviour before the re-pricing applies.

Card providers should price a card appropriately when a customer signs up for the product and any change in pricing should only apply to new transactions.

Despite new regulations being introduced in 2008, risked based repricing is still disadvantageous to many consumers who are being forced to give up using their cards in exchange for keeping existing rates. Consumers should be given a grace period following a re-price being implemented to reject the change, as many do not consider or understand the financial implications until they see the change on their monthly statements.

This practice does not happen in any other credit markets e.g. loans & mortgages and consumers should feel assured that the rate they signed up to is the rate they will pay.