UK Credit Card Issuers Agree to Change Practices

From the APACS press release:

Two changes have been agreed to help customers struggling with their finances in these challenging economic times, they reflect current industry best practice:

• Breathing space for customers in trouble: the first is the creation of an agreed breathing space for any customer working with one of the free debt advice agencies to establish a debt repayment plan. This will give those customers a minimum of 30 days, whilst they agree a repayment plan, during which time the credit card company will suspend collection activity. If discussions remain ongoing after 30 days, there is an option of extending this by an extra 30 days to ensure agreement can be finalised. This change will be invaluable to customers when they are under the most stress.
• Increased transparency on risk-based repricing: The second change will increase transparency for customers in the area of risk-based repricing. Many credit card companies use risk-based repricing to calculate the risk of lending an open-ended, unsecured line of credit to a customer whose financial position can change over time. Risk-based repricing can result in changes to the overall cost of credit to a customer. These agreed changes will ensure that customers will be notified when their interest rate is being changed as a result of risk-based repricing, and critically, if their interest rate goes up they will be given sufficient time to close their account or be offered an alternative product, where available. Credit card issuers have also agreed that they will not increase the interest rate on a card on the basis of risk during its first twelve months, or more often than six monthly thereafter. No risk-based repricing decisions will be taken after 01 January 2009 that do not comply with these principles.

We are now working to ensure these changes are built into The Banking Code so that they can be independently monitored.

Joanna Elson, Chief Executive of the Money Advice Trust says: "We warmly welcome a new 'breathing space' when credit card companies will suspend collections activity for 30 days - and if necessary longer - whilst people in debt work with free independent debt advisers to come up with a workable repayment plan. The current economic climate means that more people than ever before will be needing help and support, and this appears to be a useful step forward.”

Sandra Quinn, Director of Communications at APACS says: “These changes will really help those customers who find themselves faced with real problems in paying money back that they’ve borrowed. But ideally we’d like to help ensure customers don’t get to this point. Although half of cardholders haven’t in the past few years used credit cards as borrowing tools – but if you do borrow on a credit card or plan to at this time of year – as so many of us do – make sure you know how you plan to repay it. Credit cards offer great flexibility for borrowing in the short-term but can be expensive if you borrow over a longer period. These changes do not mean that your APR will always remain the same, which is why it is important to check that you have the right card for you. Your APR is always a good place to start but interestingly only 25%* of credit card holders say that they know the APR, and therefore what they are being charged to borrow on their credit card.”