UK Government Wants Changes to Credit Card Terms
Will the New Rules Make it Easier to Pay Off Debts More Quickly?
Oct 29, 2009
The UK Government has been making noises about changing certain credit card practices for a while. Under recent proposals they have suggested changes that are meant to make it easier for consumers to control these debts and to stop them becoming a problem.
There are worries, however, that these changes could tip some heavily indebted individuals over the edge, leaving them unable to manage their borrowings at all. What are these changes and how will they impact consumers?
Suggested Changes to Credit Cards in the Future
The aim of these proposals is, at the heart of it, good. In the recent boom period, credit card companies have been able to make it a lot easier for consumers to borrow on their cards. This has left a lot of people heavily in debt. For example, projected changes are designed to:
- No longer allow card companies to raise an individual's credit limit without asking for their approval first or without it being requested by the card holder.
- Put an end to negative hierarchy repayment methods where cheaper debt is repaid first, leaving more expensive debt (such as cash advances) to be repaid last with higher interest charges.
- Increase minimum payments to higher levels to give consumers a fighting chance of repaying what they owe in a reasonable timescale.
- Veto the issuing of credit card cheques unless requested by the consumer.
On paper, these projections look positive. The aim here is to encourage consumers to take responsibility for their own borrowing in the future and to educate them into not getting into unnecessary debt.
They will also, technically, help them repay what they already owe more quickly by putting minimum payments back to past levels. But, what are the impacts of these changes to consumers that already have high credit card debts to deal with?
How Will Consumers Cope With Credit Card Terms Changes?
Many of the proposals here will see consumers in a better position than previously if they go through. Having to think about incurring further debts by actively asking for credit limit increases or card cheques, for example, could make more think harder before borrowing. Doing away with negative hierarchy payment schedules could save money and help repay what they owe more quickly.
Whilst this is also the aim of increasing minimum repayments, this is where the main problem lies for many. A lot of UK card holders have high levels of debts and cannot afford more than the standard minimum repayment at the moment. These changes may be designed to help them clear what they owe more quickly but it could push some over the edge into deeper debt problems.
At the moment, for example, minimum repayments are set at around 2-3%. Projections show that it would be better if this went back to the 5%ish level of the past. But, if an individual is struggling to meet their commitments at 2%, then 5% could be unmanageable.
Nothing has yet been set in stone and it may be that the changes made may take this kind of situation into account. It may, for example, be based on putting together a structured repayment plan that aims to repay borrowings more quickly. But, this may still put a strain on finances for many individuals.
It is still early days for the proposals. Card holders that are worried about their situation now and in the future if change does happen may want to take some impartial debt management advice early to work out if they have any alternatives that could help them out.
Sources: "Government Unveils Credit Card Crackdown" (The Guardian, 27th October 2009); "Credit card terms 'to be curbed'" (BBC Online, 27th October 2009)
 |
 |
 |
 |
 |
