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The new credit rules - and you
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The Government has announced a new consultation into credit cards and store cards. What will it mean for borrowers?
Labour is proposing a raft of measures designed to “clean up” the industry and bring an end to practices it deems to be unfair on consumers.
Consumer minister Kevin Brennan said: “Card companies have got to get their act together and do more for consumers. The Government is putting forward new measures which we believe will give consumers a better deal.
“It is not acceptable for card companies to impose complex and confusing terms and conditions that can leave people baffled, or to increase interest rates without proper explanation.”
So what’s being proposed?
1. Ending the negative payment hierarchy
The Government is considering forcing card providers to put an end to the negative payment hierarchy that costs some borrowers thousands of pounds.
dealing with debt
Independent research carried out for moneysupermarket.com found that most credit card users do not realise that all but two UK card companies use their monthly payments to clear the cheapest debt – on the lowest interest rate – first. Nationwide and Saga are the only providers who use monthly repayments to clear the most expensive debt first.
Only one third of Britons are aware that when they sign up to a card with, say, a 0% introductory rate on balance transfers but a 16% interest rate for purchases, the payments they make each month will go towards paying off the interest-free balance transferred.
But this negative payment hierarchy could cost them hundreds or even thousands of pounds as their more expensive debts continue accruing interest at a higher rate.
by Jessica Bown
