Credit card holders to benefit from changes in the New Year
The UK Cards Association reminds the nation's 30 million credit card holders that from the beginning of the New Year they can expect to see a number of changes that will give them greater control over their credit card accounts.
The main changes for customers are:
The most expensive debt on your credit card will always be paid off first. Although on average 61% of us pay off our credit card in full every month, 39% make a part payment of some kind and it is many of these customers who stand to benefit most from this change. A quarter of all credit card accounts are likely to directly benefit.
The minimum repayment on all new credit card accounts will be set by the end of March so that even if you only pay the minimum your balance will always be reduced: the new calculation for minimum repayments will ensure it covers the interest, fees and charges, plus 1% of the outstanding balance. Only just over 3% of us make the minimum repayment across the year.
Credit card companies will no longer send out ‘unsolicited' credit card cheques, with restrictions also applying where customers request them.
Clearer communication if you are offered a credit limit increase and time to turn it down. Before your credit card limit is increased you'll be given 30 days in which to turn it down. You will also find that the ways that you can reduce your credit limit has been extended (I.e. online) and your ability to opt-out of credit limit increases altogether. The industry continues to ensure that a customer who has been identified as being at risk of financial difficulties is never offered a credit limit increase.
Clearer communication if the interest rate on your card is to be increased. You will be contacted at least twice, by means of a separate communication, and you will be given 60 days to reject the increase and pay off your existing debt at your existing rate (and to stop using the card). A fact sheet approved by the Plain English Campaign, is available from card companies to explain why re-pricing may be necessary, what you can do to reduce the chances of it happening, and what your options are should it happen to you.
More flexibility on choosing the amount of your credit card bill you wish to repay and the options to make that payment. Instead of setting up a regular payment to pay off the minimum or your bill in full you are able to set up a regular payment for an amount of your choosing.
If you are regularly making only the minimum payment, or close to the minimum, your card company will proactively contact you to alert you to the consequences of this behaviour.
All these changes are being incorporated into The Lending Code, which ensures industry commitments on credit cards are upheld.
Melanie Johnson, Chair of The UK Cards Association, said: "These voluntary changes deliver a number of positive benefits to the nation's 30 million credit card holders, giving them both increased control over their credit cards and added confidence in the way that they are managed by credit card companies.
"The industry continues to work and consult with the consumer bodies and debt advice agencies to ensure that it can best protect the vulnerable or those in financial difficulty."
Joanna Elson OBE, Chief Executive of Money Advice Trust, said: "These are important changes, and we are pleased they are being made as planned. At times like this it is vital that we do what we can to help consumers struggling with debt problems. We believe these changes will not only help people repay their debts, but that they will also help prevent future debts.
"Progress like this shows what can be achieved through collaborative effort and we look forward to continuing our positive work with The UK Cards Association and its members."