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Transparency and responsible lending in the credit card market

The card payments industry has made great strides in the past decade to help credit cardholders get the best out of their cards. Much of this work has involved improving transparency so that consumers can see more clearly what they borrow and what they repay. Consumers now have detailed information to empower them to manage their finances appropriately, while these changes also help to provide important support for customers who may be in vulnerable circumstances.

Improvements to make information about credit cards more transparent include:

Summary boxes to help compare products

  • The summary box, available on marketing materials and statements, gives the consumer all the information they need to choose the right credit card for them and ensures a diverse and competitive market. The summary box includes interest rates, the length of any interest-free period, the minimum repayment and details of any other fees and charges.

Health warnings

  • Debt advice and minimum repayment health warnings are now a feature of all credit card statements, providing a prominent warning for customers to consider.

Credit and Store Cards Review (BIS)

The card payments industry worked with government during 2010 to agree a package of reforms to the way that credit cards operate. The changes were written into the Lending Code (now superseded by The Standards of Lending Practice), which is monitored and enforced by the independent Lending Standards Board (LSB). These changes included:

Help in making repayments

  • A new way to calculate the level of a minimum payment was applied to all new credit card accounts where the minimum will cover the interest, fees and charges, plus 1% of the outstanding balance. This ensures the balance is always reducing.
  • Customers' highest interest balances are now always paid off first. Previously, most credit card companies allocated payment to the lowest part of the balance first.
  • Customers are now able to better plan their repayments by setting up regular automated payments for any amount, rather than just for the minimum payment or the full balance.

Extra support for customers paying the minimum payment, or close to the minimum

  • For the small minority of customers making frequent minimum payments, their card company will write to them to set out that this is the most expensive way to pay and also sign-post free sources of debt advice.

Measures to give customers more control

  • Cardholders will be notified at least 30 days in advance when their credit card company is planning to increase their credit limit, so they can decide whether or not to accept the higher limit. It is also now easier for them to ‘opt-out’ of such increases altogether, or reduce their existing limit at any time (including on-line).
  • Cardholders are notified at least 30 days in advance of any interest rate increase and they have up to 60 days to reject the new rate, where the account will be closed, with the balance needing to be repaid at the existing rate. Customers can also request a factsheet which explains why re-pricing may be necessary, what they can do to reduce the chances of it happening and their options when it does occur.

Annual Credit Card Statements

  • This new statement has been designed to help customers see, at a glance, how they have used their credit card over the previous year, as well as any interest and charges incurred. These statements are helping customers to assess the overall cost of their borrowing and consider whether changes in repayment behaviour might offer benefits for the following year.

An online complement to the APR in projecting the costs of credit cards

  • CardCosts.org.uk is a new website tool to help consumers understand their credit card costs. It allows credit cardholders to better understand repayment scenarios, including by experimenting with different levels of repayments and time periods. The tool also allows the user to clearly see the positive impact of paying just a little more each month.

It was designed by The UK Cards Association, in partnership with the Personal Finance Research Centre at the University of Bristol and in consultation with debt charities including Citizens’ Advice, StepChange and the Money Advice Trust.

Endorsing the tool, Jo Swinson MP, the Minister for Consumer Affairs, said the website will “…help consumers take control of their bills and pick the best credit card for their needs.”

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