credit card restrictions

New Credit Card Restrictions

The government is planning a crackdown on the credit card industry to curb the temptation to get into debt.

The BBC reported legislation will be introduced to stop card firms from raising the credit limit of a customer when this has not been requested.

Ministers also want to ban firms from sending out unsolicited credit card cheques to consumers.

UK payments association Apacs said its members did not raise the credit limits of borrowers with financial problems.

The outstanding balance owed on credit cards in Britain stands at £53bn.

“We are concerned that people may be tempted to borrow irresponsibly if credit card companies increase borrowing limits without this being requested by customers, or send out unsolicited credit card cheques,” said Consumer Affairs Minister Gareth Thomas.

“It’s vital we protect consumers at this time and we are exploring these issues carefully,” he added.

Charges

Credit card cheques are often a marketing gimmick. They are usually sent, unsolicited, to customers who are then invited to use them for purchases or payments. And will have to settle the amount on their next credit card bill.

They commonly carry more expensive charges than the cards. So items bought with them do not enjoy the same protection against goods being faulty.

In 2006, the credit card industry came under pressure from the Office of Fair Trading (OFT) and the government to rein in the practice of mass-mailing blank credit card cheques to customers.

As a result, there’s been an agreement of a new code of practice by the banking industry in December 2006.

The card companies agreed to “assess a customer’s suitability before sending credit card cheques”. This is as well as giving clear information on the cost of using them.

Andrew Hagger of Moneynet.co.uk said some people under financial pressure often saw a credit card cheque as a way of buying some breathing space.

“It also saves them having to admit to their money problems or speak to anyone about it, and because of that, they are prepared to pay the high costs associated with this type of borrowing,” Mr Hagger said.

“Unfortunately the reality is that they are just delaying the inevitable and they will eventually run out of credit, but will be faced with a far larger pile of debt,” he added.

The industry defends these cheques as an alternative way of drawing on a card account. This could be where the card itself it not accepted, for instance by a tradesman.

Apacs says only 7% of the cheques sent out are actually used. He also points out they draw on a customer’s existing credit limit, rather than increasing it.

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