Credit card companies will be told to help prevent people developing debt problems, by banning unsolicited credit cheques and raising credit limits without consultation.
These measures are part of a government white paper “A better deal for consumers – delivering real help now and change for the future”, which was announced by business secretary Lord Mandelson and consumer minister Kevin Brennan.
Credit card cheques would not receive an outright ban, but companies would only be able to send them on request from a customer. The amount spent on the cheque (which can be used in a similar way to a personal cheque), is added to the other outstanding credit card debt – which has caused controversy with debt advice organisations as the interest charged on such purchases is normally much higher than if the card itself had been used.
Other steps to reduce debt management issues arising include banning companies from raising interest rates on existing debts and overhauling the negative payment hierarchy that often exists by putting repayments towards paying off the most expensive debt. The paper also recommended raising the minimum monthly payments, as only paying the minimum payment each month can prolong debt problems.
Ivan Cooper, Chairman of leading UK debt management company Chiltern, said: “With the base rate at a historic low it’s amazing to think that credit card companies are charging almost 20% above this for some transactions – and that’s for their ‘prime’ customers!”
“The misuse of plastic, and the resulting credit card debt that ensues, is one of the main causes of debt problems in this country today. More could be done to educate people on their debt management, as there are other ways to manage finances that aren’t as expensive.”
Debt advice organisations have seen the number of people seeking solutions (like debt management plans and IVAs) rise in recent months, as the recession and growing redundancies takes a strangle hold on the economy.
Debt management plans and IVAs enable financially overstretched consumers to regain control of their finances whilst repaying their outstanding balances.
They gather multiple personal loans, overdrafts and credit card debts into one monthly payment, which is based on the client’s affordability. This makes debt management easier and simpler.
Reputable debt advice companies, that offer debt management plans and IVAs, include Hmilton Locke, The Debt People and Chiltern.
The Consumer White Paper also suggested proposals that tackle online scams where people pay for goods that never arrive.
For immediate debt advice, or for further information on debt management plans and IVAs, please call the number at the top of this page.