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Comment on the credit and store card consultation
This consultation has now closed. Thank you for all your comments, which we will be considering over the next few weeks. We will use this page to announce the results of our review in the Spring.
We want to:
- get you a better deal on credit cards and store cards
- give you more control over the money you borrow
- and make sure any changes we make help the right people
Read the full consultation below or our plain English version. You can also download the full consultation and impact assessments.
Official credit and store card consultation
Plain English version of the consultation
Plain English version
We’ve worked with Simply Understand to create a plain English version of the consultation and an audio summary.
Read the plain English version of the consultation (PDF)
Listen to our 3-minute audio summary (MP3)
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I can only agree with these reforms BUT what is going to happen to me and thousands of others who have a card debt? I have a 10000 balance which I am paying off at a minimum payment of 2.25%, I also use my small annual bonus (£500) to help pay off the debt, and any other occasional small amounts I have spare. If the minimum payment is increased to 5% I WILL go bankrupt, there is no doubt about this. My minimum payments would increase by some £270 extra. Of course I know that only I got myself into this position, but I am managing the debt and slowly reducing it. If this proposal is brought in without some thought about how to deal with current debt, thousands of people WILL go bankrupt.
the best help that the government can do to help reduce my debt is to allow me to convert my credit balance to a loan. if after 3 years their is little or no change in my debt then i as the customer can opted for a loan that i can consolidate debt. i am a teacher with good income and yet i am confused and bamboozled i’m in a mine field of credit. make it simple for me to consolidate.
i have 10000 pounds of debt and yet i applied to transfer all my debt tp a new card for 15 months but the new card would only allow me to transfer half the debt to the lower rate still leaving me with 5000 to pay on the higher card. i know it may sound silly but it is a nightmare to control especially when you only receive a statement every 3 months if you do not use the cards.
also their should be a credit options or credit plan on each statement for me to choose to help me pay off my debt quicker and cheaper than just having to change card every 15 months. this leaves me having to have 10 cards all with different rates, pins and security codes. when i choose an option to pay off the debt my card is then frozen until i pay off 50% or a % of my choice the existing balance so i can recover and repay with piece of mind.
We are Cambridge university graduates in our mid/late 20’s. We have been working very hard to clear/reduce credit card debts that accrued during our time at university when our parents were not able to support us and loan payments did not cover costs. I graduated in 2004 and once settled in working life did not increase my debt. I was able to get a good loan in 2006 and will be debt free (excluding student loan which will take longer) by Oct 2010 – this was only possible by choosing to struggle to pay a third of my income monthly in payments, a real commitment to reducing my debt. My fiance, who graduated in 2007, has been unable to get a loan as I did and is not increasing debt, but is currently paying around £300 monthly (on a 20K salary) but is only clearing around £70 a month of the cheapest debt. I welcome most of these proposed changes to credit arrangements. I also welcome the hike in minimum payment demands as a good idea to help people manage their debt but worry about existing customers. My partner is only just able to afford minimum payments and yet is not clearing much of the balance and he would struggle with any increase in monthly payments. He would be tied to DECADES of payments that would be very hard to make unless he can secure a cheaper loan elsewhere, but still pay off the same amount monthly. I have no problem with slightly higher monthly payments, but not while interest rates on some cards are 19%apr. Maybe for exisiting customers the increase in minimum payments should not be so large or compulsory, whilst new debt could be contingent on higher minimum payment percentages. We both take responsibility for the money we borrowed, and are fully accepting of some costs and time to pay it back. However, we both earn a relatively decent graduate wage and are both committed to pumping a large percentage of our income into clearing our debt (so we can get married and start a family), but this is being made almost impossible by the credit card companies, combined with more risk averse companies no longer wanting to lend to make it possible to manage debt more efficiently.
It would be much better if the Interest Rate on Credit Cards was closer to the Bank of England’s rate to stop exhorbitant profiteering on Credit Cards – this makes it almost impossible for those without financial acumen to ever pay these off AND these are the ones always being pushed at customers and the easiest to obtain.
Make the payment back to the CC higher and the interest rates lower – that way the debts get paid off quicker – also get a Credit Card companies to expain more clerarly IF you have a £5000 loan it will cost you x amount if you pay off x a month. The interest rates to those with poor numeracy skills do not mean a lot in real terms.
the system is far to compicated
its to easy to get yourself into financial difficulty by not understanding small print,
minimum payment should be raised to help repayment of dept
My main concerns are the allocation of repayments – paying off lowest interest automatically first only benefits the credit card company and is propogating longer and more expensive debts. Also, the changing of interest rates in existing debts seems to me deeply unfair too. Once a contract has been signed in good faith (admittedly there probably is a clause hidden away somewhere) then to change the terms to try and increase profits on other people’s misery is immoral.
I support the fact that a consultation is taking place but would urge a speedy resolution that helps to reduce consumer debt and takes some of the power away from the credit card companies who only care about profit, not people.
with regard to minimum repayments on credit cards, i have a number of cards with repayment levels around the 2-3% mark, some months that is all i pay, otheres i would pay significantly more, the worry i have is if i was forced to pay the level of 4-5% i could not make the minimum repayments, for example my balance on all cards is circa £25000, this currently equates to £700 per month, which i can easily manage, an increase to 5% would mean a payment of £1400 which i could not manage. this would lead to me defaulting without a shadow of a doubt. i think the voluntary option discussed is the best method of tackling this issue.
Firstly, it MUST be made a condition of lending that where multiple interest rates are applicable on a single account that the debt that attracts the highest interest must be reduced first.
At the very least a proportion of the payment equivalent to the interest plus a margin should be paid towards the debt attracting the highest interest. Anything less would be a failure.
Secondly, this rule has to be made retrospective to all accounts.
Finally, the card companies should offer the facility to pay a fixed monthly amount. The monthly statement should present information showing the time to clear the amount owed and the total interest to be paid at the offered monthly payment. If this were standardised across all lenders then it would also be be very easy to compare costs across different companies.
option 3 is the option i think would be the best way forward regarding credit car minimum repayments, i will not put unnecessary pressure on vunerable people woth high levels of borrowing.
I think the general thrust of the proposals is correct. The proposal I have an issue with is the increasing minimum repayment. I am a single Mum on Maternity Leave and this could have serious implications for me and my son. My debt is on 0% but currently I would be seriously struggling to repay any more than 2.25%.
In support of the comments raised so far that recognise the unacceptable lengths that credit card companies will go to to hide what they are doing – see below for an extract from the terms and conditions for one card that I hold. It is my belief that it is the intention of this statement to provide a defence of “we told you so” while at the same time obscuring the way that the company will attempt to maximise returns. This sort of behaviouer underlies the need to impose regulation and control from outside of the industry.
Example Clause: Payment Allocation
If you do not pay off the full amount outstanding, we will allocate your payment to the outstanding balance in specific order, which is set out in the Things you need to know for this card. The way in which payments are allocated can make a significant difference to the amount of interest you will pay until the balance is completely cleared.
i have big concerns about the minimum payment increasing, at the moment i can manage without problem at a payment of 2.5%. if it were to double i could not afford to pay, this will be giving me sleepless nights for months now!!!!!!
i am disabled and unable to work and was not working when i was given 3 credit cards and haven’t since.
i have very little money and most of it goes to pay the minimum amount, the interest is astronomical !
i just wish i could see any way out of this mess !
Stores should be discouraged from asking customers if they would like a credit card whilst paying for goods. Every time I shop at Marks and Spencers I am asked if I want a store card and tempted by the ‘benefits’ I would get. Staff are given bonus payments for the customers they sign up. I think this irresponsible behaviour by the businesses and should be banned.
Remember that credit card cheques can be returned and credit card increases can be refused. For me there are three important areas:
1. Allocate the high interest lumps to be paid off first
2. On monthly payment there should be a third option as well as min DD and full DD, namely set up a standing order? I use standing orders to pay a fixed affordable payment each month. This way you are not using the min payment and pay off the balance much quicker.
3. My credit rating is average (although I pay off etc ok) and so it is very difficult to get low or 0% interest offers. This means I am stuck with my original higher rates with no way of changing.
Hope this is of use.
People who have significant debt are not, on the whole, looking for cheap ways out nor to default on their agreements. Debt has been taken out with an understanding that it has to be paid back and most people must realise that the less they pay per month the more they’ll pay in the long run.
However that debt was taken on with an understanding that you would pay back a minimum of 2 or 3% of the monthly balance. In the current economic circumstances this level of repayment is helping some people tick over as jobs are lost or pay reduced. An increase in the minimum payment would crush many of those people, force them into IVAs or even bankruptcy. Surely it is not the aim of policy to damage people in the name of helping them?
One thing that could be done is that existing contracts should continue with, say, a minimum of 2% being repaid on those cards, but as from a certain date any new cards must attract a minimum of 4-5%. That way those who could not afford a 250% increase in their monthly payments would be protected while those taking out new credit cards would be clear in what was expected of them.
I’m not point scoring in asking what would happen if the payment terms of UK Government debt was suddenly altered to the point that payments were more than doubled? I would imagine that might cause a bit of a problem, and so it is for individuals who are trying to manage their finances.
Excess debt is undesirable, but we are where we are. There is no point in having grand ideas of helping people pay off debt more quickly if, by doing so, a significant portion of those people are unable to meet the payments thus forcing them and their families to the wall. As unemployment increases and pay is frozen it could be a recipe for absolute disaster.
No matter what legislation is passed, or what safeguards are put in place, there will always be that group of people who cannot manage their finances. I sorted out my parents finances after my mother had taken over from my father, who due to illness had relinquished responsibility, and it amazed me that she cannot manage money.
My mother still has to feel cash passing through her hands, so she cannot see using a credit card as spending, because it isn’t cash. If she uses the credit card she doesn’t see any connection with her bank account, whereas I am able to mentally deduct anything I spend on my cards from my current account.
To some people budgeting and spending within their income is voodoo magic, something that is beyond them, outside their comprehension, and that state of mind won’t change with legislation
Legislation shaped to protect these people will hinder those of us who can manage our finances, one mans safety barrier is another mans hurdle.
One area I feel should be controlled is store cards, they offer no benefits as far as I can see, any discounts offered are overridden by interest charges, and they just add more confusion to the already confused masses. I personally wouldn’t touch them, they offer no more than a credit card offers, so outlaw store cards.
If you force the companies to up the minimum % to pay each month then my family will be out on the street within 6 months. We are both redundant and scraping to pay the minimum as it is. We can just afford it and expect to go back to higher payments if we get another job. Give the choice as in option 3 but ensure that the companies don’t take this as a risk if you go for the lower payment and up their interest percentage.The higher payment should be a tick box option, the lower the norm.
As it is we are given choice. Pay the minimum or pay anything above at your own option. Your suggestion takes away choice, for no good reason, and will hurst vunerable people. Things like this should be considered after a recession. we are squeezed enough as it is.
With regard to raising the minimum repayment on cards to 4-5%. If this is done, I will be unable to make the minimum repayments on the two cards I have outstanding balances on. The minimum is currently 1-2 % and I can pay this each month and sometimes a bit more. I am a on a low-income and it would cause me severe hardship if the minimum is raised, and I would be unable to avoid defaulting. THIS COULD BECOME ANOTHER 10p TAX FIASCO SERIOUSLY AFFECTING LOW INCOME PEOPLE! Please don’t do it!
I am in favour of Option 3, as long as it really is voluntary and it is possible to continue making minimum payments at the current level.
I’m shocked. The *average* debt is £15,000? People must be really gunning their cards to manage that. I’m the sort of person the credit card companies must hate. I refuse to play their game or pay their gain: I pay the total amount every month.