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UK Cards Association Announces New Rights for Credit Card Customers

The UK Cards Association, representing the credit card industry in the UK, has announced a joint commitment with the UK Department for Business, Innovation & Skills (BIS) as a result of its consultation “Review of the Regulation of Credit and Store Cards”. According to the association, "the credit card companies are committed to supporting developments which are demonstrably in customers’ interests – making sure that customers are in control of their own finances."

Melanie Johnson, Chair of The UK Cards Association says: “We are pleased that our evidence on unsolicited credit limit increases and the re-pricing of existing debt has conclusively shown that existing practices do not need to be overhauled. We believe that, overall, the outcome of the review is balanced and will give consumers the greater control and convenience that the industry and the Government wish to provide.

“Now that we have agreement in place we can focus on the important task of implementing these changes so that customers can benefit. The key changes will be in place by the end of this year and will become part of The Lending Code.”

The range of commitments include:

  • ensuring that the highest cost debt on a credit card is paid off first (this will benefit around a quarter of all credit card accounts). This practice is known as allocation of payments
  • measures strengthened to prevent any customer facing financial difficulty being offered an unsolicited credit limit increase. Any other customer offered a credit limit increase will be offered a new 30-day notice period and simple means of ‘opting-out’. (Around 8% of the 58 million credit card accounts in UK had a credit limit increase in 2009)
  • minimum payments – card companies will contact any customer who repeatedly only makes the minimum repayment to make clear that this is the most expensive way of paying off a debt (an estimated 3% of customers pay the minimum for 12 consecutive months). For new credit card customers the minimum repayment will always cover at least interest, fees and charges, plus 1% of the principal to encourage them to change their repayment behaviour
  • re-pricing of existing debt – building on the changes already made by the industry – a 60 day notice period will be introduced, and consumers will be notified twice before any increase occurs. (Between January and October 2009, 10.6 million accounts, a sixth of all credit card accounts, were risk-based repriced, with around 40% of those being repriced downwards)
  • in keeping with the ongoing commitment to improve transparency and to simplify customer information, the industry will work with consumer groups and government to assess the case for an annual credit card statement for consumers
  • card companies will also work with debt advice agencies to agree how they might further identify consumers at risk of financial difficulties

The changes announced today represent a substantial cost to the industry estimated to be in the region of £533 million over the first two years, doubling the cost of the package of proposals put forward by the industry on 19th January. The industry’s proposals were based on an analysis of 44 million customer accounts covering cardholder behaviour over the last two years. These industry commitments will involve a variety of system changes across the UK’s credit card companies.

Latest industry data shows that in the UK in 2009 there were 30.3 million credit cardholders holding 58 million credit cards; demonstrating a real shift away from multiple cardholding (in 2008 there were 30.2 million adults holding 66 million credit cards). In 2009 61% of credit cardholders paid off their bill in full every month, up from 55% in 2007.

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