Credit card holders are to be allowed 60 days to reject changes in the interest rates charged on existing debts and will be given the chance to opt out of increases in their credit limit under the terms of the new agreement. Another significant adjustment will see lenders focus on ensuring that the most expensive debts are paid off first, potentially reducing the overall amount borrowers will need to repay.
The agreement represents a compromise reached by the government and the UK Cards Association, the group representing lenders, following a revision of initial government proposals.
Current rules on minimum repayments for existing accounts, which vary from lender to lender, will continue but the rule covering new account holders recommends minimum repayments of 1 per cent of the amount spent and that payments should also cover interest, fees and charges. Changes will come into force by the end of January 2011 at the latest with the industry estimating the costs of the change to be £533m over the first two years.
"In our consultation it was made quite clear by consumers that they might not be able to manage their current debts if they had to pay off more each month," said the Consumer Minister Kevin Brennan. "People with several cards would have had less flexibility to deal with their debts."
Melanie Johnson, who chairs the UK Cards Association, said: "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."
