Greater Transparency and Control of Credit and Store Cards Needed

By: MoneyFacts

Moneyfacts.co.uk has delivered its response to the Department for Business, Innovation and Skills’ consultation paper on ‘A better deal for consumers’ on credit and store cards.

Samantha Owens, Principal Consultant – Banking and Economic Insight at Moneyfacts.co.uk, commented: “Credit cards form an integral part of the financial services industry and allow customers to transact with convenience, reassurance of safety and added consumer protection.

“But credit cards also come with the risk of a greater temptation to overspend; it is one of the most expensive forms of credit and has little or no structured repayment mechanism.

“It is therefore essential that all credit card terms and conditions are more transparent and fully explained, so that consumers are able fully to understand their commitments to a credit card provider and make best use of a well managed product. However, it may be necessary to take some of the emphasis away from the consumer and make changes to the current system.”
 
Summary of Moneyfacts’ response to the consultation paper

Allocation of payments – Moneyfacts believes there is a real problem with customers’ understanding and while more can be done to educate credit card users, some move must be made to make the current system fairer, so expensive debts do not linger on cards for what can be several years.  A proportional allocation would benefit the consumer and not put an excessive strain on the industry.

Minimum payments – The low level of minimum payments is causing a great deal of concern as we do not believe that significant inroads are being made into the existing debt.  A recommended minimum payment will go some way towards increasing consumer information.  The fear is a blanket increase in repayments will cause difficulty to some, although, looking forward on new borrowing, the minimum levels could be increased and customers could take this into account before extending their debt.

Unsolicited credit limit increases - Unsolicited credit increases have also drawn attention and consideration needs to be given whether these are contributing to increased levels of indebtedness.  Allowing the customer to opt-in at each increase, rather than relying on them to opt-out will give them greater control. Opting in at each increase will also allow them to assess their position as their circumstances change.

Repricing of existing debt - there should be limits on how much the credit card companies can increase the rates by and how often. It needs to be assessed whether risk-based increases have the desired effect on consumers by modifying their behaviour, or whether this just causes more difficulty.

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