Credit card legislation " tightening up on lending criteria?
The current financial meltdown has taken everyone by surprise at its speed and ferocity of impact and has made the banking institutions and credit card lenders take a long, hard look at how they do business. The real killer in this current downturn has been how quickly the ordinary man in the street has been affected by the crisis and how vulnerable everyone is to its affects. The reason is simple " this recession has been the result of easy credit during the boom times; times that people were led to believe would continue indefinitely. The stark reality of the situation has now started to impact on a micro as well as a macro level.
This particular recession has resulted in swift action by the government, anxious to prevent this downturn becoming one that is comparable with the Great Depression of the 1930s. Before the credit crunch really took hold of the economy, credit card lenders had come under increasing criticism for the way that they dealt with those who struggled to make repayments, often being accused of being heavy handed and draconian. Now it is becoming clear that, because of the sheer amount of personal credit card debt and the dramatic change in circumstances facing many people, more customers will struggle to keep up with payments. The government needs to keep the economy moving and to this end have insisted that customers in trouble have more protection and the time to take advantage of professional, impartial advice before becoming subject to stricter repayment enforcement by the lenders.
Under the new regulations all cardholders will be given a 30-day breathing space to give them the opportunity to take advice from the Citizens Advice Bureau. Here they will be able to receive free, impartial guidance as to how they can deal with credit card debt and come up with a workable plan to help them meet their financial commitments. If they cannot sort their financial situation out or come up with a deal that the credit card lender agrees to within that timeframe, then there is a further 30 day buffer period during which no payment demands can be issued by the credit card lender. This gives struggling customers two months to come up with a realistic financial plan without the worry of constant demands for payment from the lender. If, however, no progress has been made during this second 30-day period then the picture becomes bleaker.
The government has also brought in a second regulation stating that credit card lenders may not increase the interest rate charges within the first 12 months of an offer being taken up. This has come about as the result of complaints by customers about significant rises in interest rate charges only weeks after taking up an offer. Although legally the credit card lenders are perfectly entitled to raise the rates, the government perhaps considered it unethical to do so in the midst of an economic crisis and particularly as the Bank of Englands base rate is currently at its lowest level in history.
These measures are designed with the sole purpose of keeping the money markets buoyant " make no mistake in thinking that this is a purely altruistic move by the government. The credit card holder still carries full responsibility for any credit card debt and the onus is on them to manage their financial affairs in such a way as to ensure that the credit card lender is not exposed to further risk of bad debt. Although in hindsight the credit card companies have come under mounting criticism for their lending policy when times were good, it should be remembered that it is always the customers choice to take up a credit card offer. The changes in legislation take into account the extraordinary circumstances of the current economic crisis and will certainly go some way to alleviate the pressure that those struggling with credit card debt are under.
The new legislation will have an impact on how credit card deals are presented to the public by the lenders, and perhaps this change in policy will lead to a more open and transparent lending system where people are made fully aware of their responsibilities right from the outset. Those with good credit ratings will still be able to continue to take advantage of credit card deals and as long as they manage their finances responsibly there should be no problem. The two 30-day periods that have been designed not for customers to miss a couple of payments but to re-establish a good relationship with their lender, are also a step in the right direction and should help to keep both credit card lenders and their customers happy.
This particular recession has resulted in swift action by the government, anxious to prevent this downturn becoming one that is comparable with the Great Depression of the 1930s. Before the credit crunch really took hold of the economy, credit card lenders had come under increasing criticism for the way that they dealt with those who struggled to make repayments, often being accused of being heavy handed and draconian. Now it is becoming clear that, because of the sheer amount of personal credit card debt and the dramatic change in circumstances facing many people, more customers will struggle to keep up with payments. The government needs to keep the economy moving and to this end have insisted that customers in trouble have more protection and the time to take advantage of professional, impartial advice before becoming subject to stricter repayment enforcement by the lenders.
Under the new regulations all cardholders will be given a 30-day breathing space to give them the opportunity to take advice from the Citizens Advice Bureau. Here they will be able to receive free, impartial guidance as to how they can deal with credit card debt and come up with a workable plan to help them meet their financial commitments. If they cannot sort their financial situation out or come up with a deal that the credit card lender agrees to within that timeframe, then there is a further 30 day buffer period during which no payment demands can be issued by the credit card lender. This gives struggling customers two months to come up with a realistic financial plan without the worry of constant demands for payment from the lender. If, however, no progress has been made during this second 30-day period then the picture becomes bleaker.
The government has also brought in a second regulation stating that credit card lenders may not increase the interest rate charges within the first 12 months of an offer being taken up. This has come about as the result of complaints by customers about significant rises in interest rate charges only weeks after taking up an offer. Although legally the credit card lenders are perfectly entitled to raise the rates, the government perhaps considered it unethical to do so in the midst of an economic crisis and particularly as the Bank of Englands base rate is currently at its lowest level in history.
These measures are designed with the sole purpose of keeping the money markets buoyant " make no mistake in thinking that this is a purely altruistic move by the government. The credit card holder still carries full responsibility for any credit card debt and the onus is on them to manage their financial affairs in such a way as to ensure that the credit card lender is not exposed to further risk of bad debt. Although in hindsight the credit card companies have come under mounting criticism for their lending policy when times were good, it should be remembered that it is always the customers choice to take up a credit card offer. The changes in legislation take into account the extraordinary circumstances of the current economic crisis and will certainly go some way to alleviate the pressure that those struggling with credit card debt are under.
The new legislation will have an impact on how credit card deals are presented to the public by the lenders, and perhaps this change in policy will lead to a more open and transparent lending system where people are made fully aware of their responsibilities right from the outset. Those with good credit ratings will still be able to continue to take advantage of credit card deals and as long as they manage their finances responsibly there should be no problem. The two 30-day periods that have been designed not for customers to miss a couple of payments but to re-establish a good relationship with their lender, are also a step in the right direction and should help to keep both credit card lenders and their customers happy.
About the Author:
Tim Jones writes for various financial based websites and likes to report on changes and events in the credit card market. You can find further information on the credit card here.
posted by Credit Counseling at
4:31 AM
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