Transparency, choice and consumer protection in the credit cards 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, up-to-date information to empower them to manage their finances appropriately, while these changes also help to support more vulnerable customers.
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 sets out the annual percentage rate (APR), interest rates, the length of the interest-free period, the minimum repayment and any charges that might be incurred.
- Debt advice and minimum repayment health warnings are now a feature of all credit card statements.
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, 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 minimum payments, this may be a sign that they are in financial difficulty. To provide support, after six months the card company will send a letter to the customer with advice. This will set out the extra interest they will pay on the debt, as well as highlighting the impact that higher payments can have on reducing the interest applied, and also sign-posting 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. They will also then be reminded that they have 60 days to decide not to accept the new rate, where the account will be closed and they can pay off their balance 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 to summarise borrowing
- The new Annual Credit Card Statements have been designed to help customers see at a glance how they have used their credit card over the previous year, as well as any fees and costs incurred. Card customers will receive their first annual statement on the anniversary of when the account was opened. 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 better understand repayment scenarios, including by experimenting with different levels and time periods.
CardCosts goes further than similar existing tools by capturing details of different types of balance, covering not only traditional card purchases, but also balance transfers and cash advances. Furthermore, it allows the user to clearly see the impact of paying just a little more than the minimum payment.
It was designed by The UK Cards Association, with the University of Bristol, in consultation with debt charities including Citizens’ Advice and National Debtline. 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.”