Comment on the Government's 'Better Deal for consumers' White Paper

“We absolutely support the government’s aim of making the credit card market as simple and safe as possible for consumers.  However, we also need to acknowledge that the credit card market is highly competitive and there is no shortage of product innovation and offers for consumers to benefit from.  Inevitably tighter regulation comes at a cost and we need to beware the ‘waterbed effect” – providers will still need to make money, and if rates and charges are pushed down in one area to benefit one group of customers they are bound to pop up in another, hitting another group of borrowers in the pocket.

“For example, whilst we welcome the issue of ‘negative payment hierarchies’ being addressed, this could result in a reduction in the number of 0% balance transfer deals on offer.  We think it is unfair that the majority of providers force consumers to pay off their cheapest, rather than their most expensive debts first.  However, this is one of the ways providers fund 0% deals.  Our view is that consumers should pay off their most expensive debts first, but we need to understand that this will change the dynamics of the market.

Unsolicited offers of new Credit Cards

“The banning of the sending of unsolicited credit card cheques in the post is a positive move and not before time.  Too many consumers have been seduced by these cheques, often without realising that they come with catches – such as high APRs and no interest free periods.  It is positive, though, that customers will be allowed to request cheques as they can be a useful tool – for example when paying larger sums when people don’t have the ready cash and can’t use a credit card – perhaps for paying a builder for essential repairs.

Unsolicited offers from existing credit card issuer to increase the Card Limit

“Credit cards firms are often criticised for increasing their customers’ credit card limits without being asked and we can see no downsides in stopping this practice, which can encourage some consumers building up unsustainable levels of debt.  Customers who want a higher limit should have to request it and lenders should assess the affordability of the request before granting it. 

“The suggestion of increasing minimum repayments would be a positive move. For example, a borrower with a £1,000 balance on a credit card at 16.9 per cent APR, paying the current minimum repayment of two and a half per cent, will rack up £ 966 in interest, and the total balance will take 16 years to pay off. However, by paying five per cent each month they will pay nearly £630 less interest, and shave 9 years off the repayment.  Once again, we need to be aware of the sting in the tail – higher minimum repayments may result in more hard up consumers missing payments or not making the full payment, and therefore incurring additional fees and charges.  Interestingly when Barclaycard announced cuts to its minimum repayments last week our forums were full of its customers welcoming the news.

“It will be interesting to see whether requiring credit providers to check consumer’s credit worthiness more thoroughly will lead to customers having to provide proof of income when applying for a credit card.  At the moment card providers don’t do this, making them do so would increase costs and the amount of time it takes to apply for a credit card.

“Finally the government is looking at ways to increase the effectiveness of consumer education, so they can make better informed decisions; while this is a noble ideal, there is a mass of information already available to consumers. For example, moneysupermaket.com compares more products from more companies than any other comparison site, and users can compare every credit card in the market on its site.”

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