Defined Terms and Documents

Application to Northern Ireland, Scotland and Wales 16

The Consultation Process 17

Allocation of payments 21

Minimum payments 23

Unsolicited credit limit increases 27

Automated payments 29

Store card cooling off period 30

Re-pricing of existing debt 33

Unsolicited credit limit increases 35

Government Response to Consultation

2

Minimum payments 38

Re-pricing of existing debt 39

Unsolicited credit limit increases 40

Education 41

Annual statement 44

Labelling 45

Basic credit card 46

3

new approach to consumer credit which works in today’s difficult financial times but is

also fit for tomorrow’s brighter economic future. In our consultation on credit and store

card reform, we set out some ideas as to how credit and store card regulation could

change to secure a better deal for consumers. Given the scale of credit and store card

lending in the UK, we were conscious that changes would have an impact across society

and we asked for your views on what you felt we should do to improve the credit and store card market.

You responded in your thousands to our online poll and we received hundreds of

responses to our consultation. Responses came not only from credit and store card

lenders and consumer groups, but also from many, many individual consumers. The scale

of the responses received has emphasised to us the importance that so many of you

attach to this issue and the need for us to come up with the right solution, one which

is fair to consumers, proportionate for lenders, targeted at the real problems and which

avoids unintended consequences.

It was clear from the responses we received from individuals that many of you value

the flexibility and security offered by credit and store cards, and particularly the ability

they provide to borrow large sums of money on a flexible and unsecured basis. Many of

you also take advantage of the benefits associated with credit and store cards such as

rewards schemes, cashback and theft and fraud protection. However, the responses to

our consultation confirmed that more can, and needs, to be done to tip the balance of

responsibility and control away from lenders and towards individual consumers, whilst

ensuring that we do all we can to protect the more vulnerable consumers who are most

at risk of struggling with unsustainable debt.

We have given very careful consideration to all the consultation responses received and

evidence from new research into this area. We are setting out five new consumer rights

which we believe give consumers a fairer deal and more control over the way in which

they can choose and use their credit and store cards. These new protections strike

the right balance, protecting consumers from what they see as unfair and misleading

practices and empowering them to take greater control of their borrowing, whilst at the

Government Response to Consultation

4

same time minimising the risk of higher rates and increased red tape for the responsible

majority of consumers who manage their cards well. We have made tough demands of

industry. The implementation of these new consumer rights will hit their bottom line and

involve extensive changes to their IT systems. It is to their credit that they have agreed

that the key benefits to consumers will come into effect by the end of the year without

the need for legislation. We are particularly pleased that by next year, the counterintuitive

practice of allocating payments to the cheapest debt first will be reversed. Interest will

build up less rapidly on expensive debts like cash withdrawals and consumers will be able

to pay off their debts more quickly.

These changes need to be seen alongside the extra protections we are introducing for

consumers in the Consumer Credit Directive and through the Office of Fair Trading’s

Irresponsible Lending Guidance. We believe this framework will result in a new, more

responsible culture of credit card lending and borrowing. We want credit and store card

borrowing to be based on a fair and transparent relationship between borrower and

lender; necessary if card lending is to remain an innovative, viable and profitable sector in

the longer term. We welcome industry’s willingness to work with us on this. We will hold

them to the spirit as well as the letter of the agreement, and we will monitor the impact

closely to ensure these changes are delivering positive results. We are convinced they

will, and indeed that this agreement will prove to be a positive next step towards restoring

consumers’ and taxpayers’ trust in financial services.

Rt Hon Lord Mandelson Kevin Brennan MP

5

Government Response to Consultation

6

The Government and credit and store card companies have agreed to introduce five new rights for credit and store card users. These are:

The Government and the card companies have agreed that the key consumer benefits will come into effect by the end of the year. This means that consumers do not have to wait for legislation to be passed to benefit from these measures. These measures are in response to the Government’s recent public consultation on the regulation of credit and store cards.

are confused by the current system, and research commissioned by the UK

Cards Association found that regardless of the way in which the current way of

allocating payments is explained, consumers find it counterintuitive.

means that some minimum payments on new accounts will be higher in future

to ensure that at least 1% of the loan itself is paid off as well as the interest

and any fees and charges incurred. US based firms already have to do this in

the UK, and this agreement will level the playing field. We want to encourage

more responsible borrowing and lending in future, but have seen from the

consultation evidence that it could be harmful to apply this increase to existing

accounts.

automated telephone system so consumers can do so without having to speak

to an adviser.

undertake a creditworthiness assessment before offering a significantly

higher limit, and the OFT’s new Irresponsible Lending Guidance will expect

identify consumers at risk.

Government Response to Consultation

10

many consumers were limited to paying the full amount each month or the

minimum payment. This will be available to all consumers online.

outstanding balance at the existing rate. This doubles the time consumers have

to consider an interest rate increase and take action. In addition, consumers will

be notified at least twice during the 60 days that they have the right to reject

and card companies will tell them how much their borrowing will cost at the

higher rate so they are able to see the real impact of an interest rate increase

when making their decision.

time. Card companies will make it as easy as possible for people to do so, in

particular by automating this process.

consumers who are using their card in ways which may be putting them at

risk of financial difficulties or incurring high levels of interest on their debts, for

example making repeated low payments. This will illustrate how their current

behaviour is costing them more money and will explain what they can do to

improve their situation, including providing details of independent sources of

advice and support.

consumers facing an interest rate increase at least 30 days before the change.

Previously, some lenders only notified consumers through their monthly

statement. Consumers will also be reminded after this that they can reject

the interest rate increase within 60 days, close the account and pay down the

outstanding balance at the existing rate. These communications will explain in

clear and simple language how their rate is changing, what it will cost them and

that they have a right to reject the new interest rate.

New Rights For Credit And Store Card Users

11

offered an increase in their credit limit at least 30 days before the change.

This will explain in clear and simple language how their limit is changing and

what they can do if they wish to reject the new limit. The communication will

reassure consumers that their card company will not treat them any differently

simply because they have exercised their right to reject a limit increase or

reduce their limit.

send out are clear and easy to understand.

about how much it has cost them to use their card over the last year. This

statement will be available electronically so that consumers can easily use

this information to compare the cost of their current card with other offers

online, in particular through the forthcoming impartial credit card comparison

tool on the Moneymadeclear website (www.moneymadeclear.fsa.gov.uk). The

statement will be fully tested with consumers to ensure that it is easy to use

and understand.

voluntary arrangements. This will lock in good practice, and give these new rights

the full force of the law.

12

Chapter 1: Introduction

13

of the credit and store card market, the Government published a consultation on

this issue on 27 October 2009. This consultation was set in the context of rising

levels of consumer indebtedness, increasing consumer complaints about credit and

store cards, and concerns about the complexity and fairness of their key features.

The purpose of the consultation was to secure a better deal for consumers, giving

them improved control of their credit and store card borrowing, whilst also ensuring

that any intervention is proportionate, transparent and targeted. The consultation

document and this Government response (including plain English versions) in

addition to the summary of responses and the final economic and equality impact

assessments are all available at www.bis.gov.uk/creditconsultation/response.

institutions. £230 billion of this borrowing is unsecured borrowing, including

personal loans, overdrafts, credit cards, store cards and some other forms of

specialist lending. Overall, there were around 1.9 billion credit card transactions

in 2009, with a value of over £100 billion (the comparable figure for store cards is

approximately 52 million transactions). After the US, the UK has the highest number

of credit cards per head of population (1.2 cards per adult) with 60 million credit

cards in circulation at the beginning of 2010.

to £2.3 billion in 2009, in contrast to –£3.3 billion for other types of consumer credit.

This shows how valuable credit cards have been to consumers in the current

economic conditions, as their use of alternative forms of borrowing has decreased

and banks have become more cautious and constrained in their lending. In contrast,

the store card market has shown a decline in popularity in recent years and retailers

have increasingly migrated customers onto credit card products. Data on store

cards is less readily available, but latest figures indicate that lending fell by 13% in

the past 12 months.

financial products that allow consumers to borrow reasonably large sums of money

on a flexible, unsecured basis. The convenience, flexibility and security they offer

are valued by large numbers of consumers who use them to make a wide range of

purchases. They are accepted at more than 23 million retail outlets worldwide and

are the predominant form of payment for purchases made on the internet. They

can be helpful in giving consumers the ability to cover periods of particularly high

expenditure or temporary shortfalls in income and many come with rewards such

as cashback or points schemes and other benefits such as rental car insurance and

theft and fraud protection.

focus groups conducted by TNS-BMRB, consumers identified a number of reasons

why they felt credit cards are essential. These included coping with emergencies,

Government Response to Consultation

14

providing protection and security and the fact that credit cards are very widely

accepted by retailers, including overseas. This was mirrored in a consumer survey

carried out by GfK NOP which found that many expressed a high degree of

satisfaction with their credit cards citing a number of benefits, including that they

represent an easy, accessible and effective payment mechanism, and provide

advantage of the numerous benefits associated with credit cards. Research by

TNS-BMRB, for example, shows that the most popular feature of credit cards was

the protection they offer against fraud or goods not arriving (selected by 34% of

customers), the next most popular was having a low interest rate on purchases

made with the card (25%). Grouping together the different rewards offered, around

a third (31%) of customers felt cashback, travel insurance or airmiles were most

valuable. For store card users, two-fifths (38%) said that reward schemes were

valuable, followed by interest rates on purchases (16%), signing up offers (16%)

and retailer special events (15%).

responsibly and indeed, many consumers use their cards astutely to take the

greatest possible advantage of the benefits they offer. In our consultation, our

concern was in providing a fair deal to all consumers. Consumer research showed

that consumers recognise that lenders are businesses and that it is necessary for

them to profit from the provision of credit. They also recognise that credit and store

cards offer a facility to consumers and that there is a cost associated with accessing

and using this facility.

between consumers and lenders should be fair and reasonable. In part, this means

accessible and clear product information. Credit and store cards are complex

products, and even the most financially astute may not be fully aware of the true

cost of using their card or understand how they can make the best use of it. These

consumers may all benefit from simpler and clearer information on their cards, and

better opportunities to make decisions about their credit and store card use.

debt. On forums and our website, a number of consumers argued that it should not

be the responsibility of Government or even lenders to police consumer borrowing

behaviour. Comments such as these were typical of those views: “The minority

who do allow their debts to run out of control are behaving irresponsibly and need to

be made to take responsibility for their own choices” and “consumers are free not

to use any cards or if they do use such cards then they are free not to accumulate

debts on them”. Others, however, expressed concern that card companies are

1 Available at http://www.theukcardsassociation.org.uk

Chapter 1: Introduction

15

not taking sufficient responsibility for protecting their customers, particularly the

most vulnerable. This was backed up by research by TNS-BMRB which found that

consumers felt that card providers had a duty to behave responsibly, particularly in

relation to more financially vulnerable groups.

who, whilst a minority, are more likely to struggle with unsustainable credit or

store card debt. We believe that more can be done by lenders to help these more

vulnerable consumers, many of whom may find it more difficult to resist the

temptation of spending on a credit or store card. We want to ensure that these

consumers have the ability and opportunity to choose a card product that is right for

them and that they are not, unwittingly or otherwise, put in a situation which causes

them financial harm.

of measures relating to credit cards in the US Credit Card Accountability,

Responsibility and Disclosure (CARD) Act. The impact of these measures is yet

to be fully realised, but it is clear that certain practices adopted in the US would

not be appropriate for the UK market. In other areas, for example the allocation of

payments, the measures we are setting out here go further than the US authorities

have chosen to go.

regulated market and where there are a number of forthcoming developments

that have a direct read across to this consultation, not least of which are the

implementation of the Consumer Credit Directive and the publication of the OFT’s

Irresponsible Lending Guidance. The consumer credit landscape is changing rapidly.

It is important to ensure that there is certainty for both lenders and consumers

about the regulation of this area and how it impacts them. It was precisely because

of the need for the OFT to take account of our credit and store card review in

its Irresponsible Lending Guidance that the OFT delayed the publication of its Guidance.

rights for credit and store card consumers which correspond to the five areas

covered in our consultation document. You may make copies of this Government

response without seeking permission. Printed copies of this Government response

can be ordered from the Publications orderline. It may also be possible to make

other versions of this document available on request in Braille, other languages,

large fonts and other formats. Please contact the Publications orderline at Annex E

for details.

Government Response to Consultation

16

Consumer credit issues are not devolved to Wales or Scotland. Consumer credit

is a devolved matter in Northern Ireland, but the legislation (the Consumer Credit

Acts 1974 and 2006 and associated regulations) applies to the whole of the UK.

The Minister of Enterprise for Northern Ireland asked that Northern Ireland be

included in this consultation with a view to ensuring that people in Northern

Ireland would benefit from the proposed reforms.

that consumers in Northern Ireland have been able to participate fully in this

consultation. The views of these consumers, and of industry in Northern Ireland,

have been included in this consultation and have been considered by the

Government in this response.

the intention is that the proposals set out in this Government response will apply

across the UK. Our intention to place these new rights on a formal statutory

footing will only apply to Northern Ireland following consent from the appropriate

Northern Ireland authorities.

Chapter 1: Introduction

17

The consultation asked 80 questions covering a range of issues. The consultation

questions are attached at Annex A.

national and regional newspapers and a publicity campaign which included GMTV,

BBC Breakfast, Today programme, BBC News 24, ITN (National and Regional),

Sky and a number of radio interviews. During the consultation period, the Minister

for Consumer Affairs, Kevin Brennan MP, also did a podcast with FT.Online and a

live webchat on the Number 10 website.

assessments were sent to key stakeholders, placed onto the BIS website at

www.bis.gov.uk/creditconsultation and hardcopies were made available via the

BIS Publications Orderline. In addition, BIS worked with Simply Understand to

create a plain English version and an audio summary of the consultation, both

of which were also available on the BIS website. We also worked closely with a

range of key interested stakeholders to publicise the consultation through internal

company intranets, conferences and email newsletters.

(see Figure 1 for results), 742 respondents left comments on our website and 204

commented directly via our dedicated email address cscr@bis.gov.uk. All these

comments have been read and analysed by BIS officials and have been taken into

account in our Government response.

including the BBC Have your Say webpage, www.moneysupermarket.com and

www.moneysavingexpert.com. The comments made on these external forums

were similar in nature and tone to those that were made on our website and by

email. Whilst the comments made on these external websites are not official

responses to our consultation, they have also been considered by BIS officials,

and have helped inform this Government response.

and organisations. Figure 2 shows a breakdown of responses by sector. A list of

those respondents who did not request confidentiality can be found at Annex B.

a series of meetings with a number of relevant organisations. BIS officials also

attended a number of committee meetings and workshops, as well as holding a

series of meetings on an individual basis with industry participants. A list of the

Government Response to Consultation

18

organisations we met with can be found at Annex C. The points raised in these

meetings have been taken into account in this Government response.

projects late last year and the findings of both have been taken into account.

One of these conducted a consumer survey, and also involved a number of focus

groups to explore consumer attitudes and behaviour in greater depth. The other

research project looked at international experience of credit card regulation,

including the recent US CARD Act. The results of both research projects are

available at www.bis.gov.uk/creditconsultation/response.

comments made both directly to BIS and on forums.

The question asked read: “The Government wants to secure a better deal for

consumers, giving you better control of your credit and store card borrowing,

whilst ensuring that any regulation is proportionate, transparent and targeted. We

are consulting on changes to credit card and store cards. Which of the following is

the biggest issue for you?”

Allocation of payments 1423

Minimum repayments 519

Unsolicited credit increases 457

Re-pricing of existing debts 802

Simplicity and transparency 749

36%

13%

12%

20%

19%

Allocation

of payments

Minimum

repayments

Unsolicited credit

increases

Re-pricing of

existing debt

Simplicity and

transparency

Chapter 1: Introduction

19

Academia/Think tanks 2

Commercial comparison site/advice providers 3

Consumer bodies/debt advice agencies 10

Individual credit and store card companies 11

Trade Associations/Industry bodies 5

Credit reference agency 1

Local authority 1

Regulatory bodies 2

Academia/

Think tanks

Comparison sites/

advice providers

Consumer bodies/

debt advice agencies

Credit and store

card companies

Trade Associations/

Industry bodies

Credit reference

agency

Local authority

0 Regulatory bodies

2

4

6

8

10

12

2

3

10

11

5

1 1

2

Number of respondents

20

Chapter 2: Right to repay

21

card to be paid off last, with the cheapest paid off first. This means that the debts

attracting the highest level of interest payments (usually cash advances) will

not begin to be paid off until any balances attracting a lower rate of interest (for

example, those arising from a 0% balance transfer deal) have been paid off in full.

realise that this method of allocating payments is common practice, and we

proposed the following options to address the issue:

1. Do nothing beyond current legislative and regulatory activity;

2. Improve information transparency;

3. Allocate repayments proportionally to debts attracting different interest rates;

4. Allocate repayments to the most expensive debt first;

5. Allow consumers to pay off cash advances first.

particular detriment under the current system: those who withdraw cash on credit

cards, and balance transfer users who might not be receiving all the benefits of

0% deals that they believed they signed up for.

current method of allocating payments on consumers who withdrew cash and

made minimum payments. According to TNS-BMRB research for BIS, 42% of

consumers making minimum payments also withdrew cash on their credit cards.

Full reversal of the current method of allocating payments (option 4), would help

these consumers.

separately (option 5), on the basis of the consultation evidence we believe that

all consumers, including balance transfer users, should benefit from a reformed

system.

Government Response to Consultation

22

from the discount as they would have liked or expected. Money Advice Trust

reported a number of clients who transferred balances to 0% or low interest

cards, with the intention of reducing their indebtedness, only to find their plans

go wrong because they did not understand how payments to the new cards

were allocated. Around 15% of consumers said that they currently choose to

make the minimum payment because they are on a promotional rate/offer. These

consumers would also benefit from a full reversal of the current method.

acceptable. In our online poll, 37% considered the allocation of payments to be

the most important issue in our consultation. The vast majority of respondents

commented on the confusing and counter intuitive nature of the current practice

of allocating payments to the cheapest debt first. There is a general feeling that

further transparency measures (option 2) would not affect consumer behaviour

because however it is explained, the allocation of payments is very difficult to

understand. The vast majority of individual consumers and consumer groups,

supported by Nationwide Building Society, called for a full reversal of the method

of allocating payments (option 4). The UKCA, on behalf of the rest of the credit

card industry, proposed a variation on this option, with payments above the

minimum payment being allocated to the most expensive debt first. However,

about 20% of consumers, including many at risk of financial difficulty, make only

the minimum payment in any given month, and would not benefit from a partial

re-allocation of payments.

are confused by this issue, and this is supported by our own research. Consumer

focus groups displayed a low awareness of the issue, and considered the current

practice to be “sneaky” and counterintuitive. The Government shares the view

of many consumer groups, supported by evidence from US-based research,

that increased information and transparency alone would be unlikely to help the

2 The requirement to allocate payments to the most expensive balances first applies to all revolving

amounts on a credit or store card. Where such an agreement includes a fixed-sum credit plan agreement

(for example an instalment loan on a store card under which the consumer undertakes to pay regular

fixed instalments over a certain period) the requirement applies to payments beyond those required to

satisfy the fixed instalments.

Chapter 2: Right to repay

23

as using the card as a revolving credit product, consumers can take out fixed

instalment plans under which they undertake to pay regular fixed instalments over

a certain period. In these situations, the requirement to allocate payments to the

most expensive debt first applies to payments beyond those required to satisfy

the fixed instalments.

month against their outstanding balance without incurring default charges from

the credit or store card lender. In the consultation document, the Government set

out its concerns that minimum payments are set at such a level that if consumers

were only ever to make the minimum payment they would end up paying off

debt very slowly, in some cases over decades, and paying significant amounts

of interest. The Government proposed a number of options to address these

concerns:

1. Do nothing beyond current legislative and regulatory activity;

2. Improve information transparency;

3. Set a recommended minimum payment;

4. Increase the minimum payment.

minimum payments and were supported by many lenders who worried about the

effect of an increase on the ability of consumers to meet higher repayments. In

contrast, a number of consumer groups were keen to see a managed increase in

minimum payment which was phased and/or applied to new debt only thereby

minimising harm and distress to the most vulnerable consumers. Only one or two

consumer groups called for a blanket increase in minimum payments.

minimum payments over the long term. A study of UK credit card accounts carried

out by Argus on the behalf of the UK Cards Association showed that of those

consumers who make the minimum payment, almost 3 in 10 do so only once

over the course of a year, with few making consecutive and regular minimum

payments (just 3.1% of all consumers make the minimum payment every month

for BIS confirmed that the majority of consumers who say they make minimum

payments do so for less than a year, it also showed that a significant proportion

3 Study cited in the UKCA’s response to the Credit and Store Cards Review Consultation. Available at

http://www.theukcardsassociation.org.uk/view_point_and_publications/what_we_think/-/page/881

Government Response to Consultation

24

of minimum payers have been doing so for many years with over 1 in 10 doing

so for over 5 years. There would seem to be, therefore, a significant minority of

consumers who are long term habitual minimum payers and who may be more at

risk of longer repayment periods and higher interest charges.

habitual minimum payers in the longer term, we are also conscious of consumer

research which shows that many consumers who make the minimum payment

do so because that is all they can afford; over half of minimum payers according to

GfK NOP and 37% according to TNS-BMRB. This high percentage of consumers

who say they make minimum payments for affordability reasons was supported

by concerns voiced by many individual respondents to the consultation that

a significant and blanket increase in minimum payments would cause them

considerable financial difficulty.

impact of various increases in minimum payments on consumers. This showed

that for an increase in the minimum payment to 5%, the average customer would

have to find close to an extra £100 per month and that this increase would affect

nearly 40% of accounts. Consumer research carried out by GfK NOP further

showed that over 60% of those consumers who currently make the minimum

payment might or would definitely find it difficult to meet increased minimum

repayments.

(option 4). We are aware of the strong views of consumers that an increase

in minimum payments might exacerbate financial difficulties and the evidence

from commissioned research which confirms the financial impact of an increase

in minimum payments on some consumers. We have also taken note of initial

research by Professor Stewart and colleagues at the University of Warwick which

shows that increasing the minimum payment level could decrease the percentage

of consumers who make full or part repayments. Finally, we have been advised

by lenders that an increase in minimum payments would have an impact on their

profits, which they might seek to recoup from customers in other ways (e.g.

increased interest rates, annual fees).

lending in the future, we are conscious that any increase in minimum payments

on existing accounts could have significant short term negative consequences for

Chapter 2: Right to repay

25

new accounts will protect those most at risk from higher minimum payments as

these consumers will not be affected unless they open a new card account or

transfer their existing balance onto a new card.

payments for new accounts. A number of US providers with a base in the UK

have been required since last year to set their minimum payments on new

accounts so they cover fees and interest that have been applied to the account

plus 1% of the principal. This is a departure from the current requirement for UK

lenders which states that the minimum monthly repayment should cover more

than that month’s interest but sets no other requirements.

on an equal playing field whilst at the same time allowing those lenders that

want to set their minimum payments at levels higher than this new threshold

to do so, as a number already do. We also believe that it is right that consumers

paying the minimum should be able to decrease their outstanding balance each

month assuming no further spend on their card. This is not currently the case

in all circumstances. Increasing minimum payments by a modest amount will

ensure that they are meaningful without giving rise to the risks highlighted in

is technically complex, and some card companies have indicated that it may be

difficult to implement this particular element of the agreement by the end of

the year. The Government will be monitoring implementation and is confident

that card companies will make strenuous efforts to ensure that this measure is

implemented as soon as possible.

4 Where a lender applies interest for a period which covers more than one month (e.g. in the case of a buy

now, pay later agreement or where interest is backdated on the expiry of a balance transfer deal), the

level of the interest component within the minimum payment for any month shall be proportionate to the

period over which the lender accrues the interest.

26

Chapter 3: Right to Control

27

higher credit limits on an unsolicited basis, that is, without the customer having

requested an increase. In our consultation document, we set out our concern that

consumers do not have enough control over increases in their credit and store

card limits. Consumers have a lack of consumer information and control over the

timing and scale of limit increases, some will have low financial capability, and

some may find it difficult to reject an increase. We believe that further action is

necessary in this area, and propose a number of options:

1. Do nothing beyond current legislative and regulatory activity;

2. Improve information transparency;

3. Limit the size and/or frequency of individual limit increases;

4. Ban all unsolicited limit increases;

5. Allow consumers to opt in to receive unsolicited limit increases.

attracted very few comments from individual consumers. It is, interestingly,

the only area where at least some consumers who responded felt strongly

that lenders were doing enough and no further action was required (option 1).

However, at the other end of the spectrum, a few consumers felt equally strongly

that consumers should be able to request or opt in to a credit limit increase

(option 5), or that there should be a complete ban on increases initiated by lenders

(option 4). Many consumers commented that it was difficult for them to reduce

their credit limit if they wanted to, and some explained that their card company

had pressured them not to reduce their limit when they rang up. Which? reported

that consumers they spoke to complained of similar experiences, for example,

being told that they would not able to request a higher limit for a year if they

reduced it now. However, TNS-BMRB found in their research that a large majority

of those consumers who did contact their lender after a credit limit change found

it easy to do so. Most consumer organisations and debt advice agencies were

in favour of a ban (option 4), or requiring lenders to seek consumer consent

each time they wished to increase their limit (option 5). Card companies argued

Government Response to Consultation

28

strongly against a ban or a requirement for consumers to opt in to limit increases.

Industry instead proposed a number of changes, including giving consumers

more information about limit increases, and making it easier for them to reduce

their limit.

given unsolicited limit increases when they were already in, or at serious risk of,

financial difficulties. Citizens Advice, for example, cited individual cases where

clients on benefits or out of work had been given limit increases even where they

were already heavily indebted and experiencing financial difficulties. Industry data,

however, showed that such cases are the exception; in general, limit increases are

not given to high risk customers who are already close to their limit. This evidence

also suggested that receiving an unsolicited credit limit increase may not increase

the likelihood that consumers will get into financial difficulties. In fact, consumers

who receive a credit limit increase are less likely to default than similar consumers

who are not given a limit increase. Research conducted by TNS-BMRB showed

that 84% of consumers questioned who had had an unsolicited limit increase said

that it had no effect and was not important to them. Only 3% said they increased

their spending on the card. Research evidence about what consumers feel would

be the best approach was mixed. TNS-BMRB research found that consumers

favoured a full ban. This finding was mirrored by research conducted by GfK NOP

which found 63% of consumers thought a ban would be a good idea. However,

only 35% of consumers still favoured a ban if it would mean that some people

would find it harder to get a card, and only 17% favoured a ban if it would mean

that they themselves would find it hard to get a card.

they may offer higher credit limits at the outset. This could lead to higher levels

of problem debt. At the moment, lenders can manage their and their customers’

exposure by giving them a low initial limit, slowly increasing this over time if the

consumers demonstrate they can use the card responsibly (a “low and grow”

model of lending). If those consumers cannot manage their card properly then

the amount they owe will be limited; with higher initial limits such consumers

may end up owing considerably more. Second, card companies may not offer

credit at all to low income consumers and consumers who have little or no credit

record. Those consumers might then be forced to use more expensive types of

borrowing such as payday lending or home credit.

care strongly about limit increases. Whilst the Government is very sympathetic

to the concerns of debt advice agencies and consumer groups about negative

selling techniques in credit, the evidence does not show that unsolicited limit

increases are linked with problem debt and that the costs of change in this area

Chapter 3: Right to Control

29

could significantly harm the interests of many consumers. It is important to

balance protections for vulnerable consumers with the interests of the majority

of card users who manage their own spending and borrowing responsibly. In

particular, it is important that consumers who rely on “low and grow” products

and use them responsibly should not lose access to credit cards. However, it is

clear that more can be done to give consumers better control of their credit limits.

In particular, consumers should have the right to reduce their credit limit to a level

they are comfortable with at any time, and without incurring any penalty or being

pressured by their card company to change their minds. The Government has

do this online or through an automated telephone system if they want to so that

it is easy to do and card companies cannot talk a consumer out of their decision

are not leading to high levels of over-indebtedness, the Government remains

concerned that there are still too many individual cases where consumers are

finding themselves in over their heads on credit or store cards. The experience of

debt advice agencies shows that there are still times when consumers already at

risk of financial difficulties are being granted a higher limit. The Consumer Credit

Directive will introduce a new legal requirement to undertake a creditworthiness

assessment before offering a significantly higher limit and the OFT’s new

Irresponsible Lending Guidance will expect firms to check that any new limit is

and do more to ensure they have properly identified those consumers. Card

companies have agreed with us that they will work with debt advice agencies to

agree how they will identify those ‘at risk’ consumers to whom they are banned

from offering a limit increase.

direct debits or standing orders. Direct debits tend to be for either full repayment or

minimum payment each month. Of those customers who want to make a payment

between the minimum and the full amount, the majority will have to top up their

automated payment for the minimum every month by phone, online or by post.

Government Response to Consultation

30

payment mechanisms, particularly when it came to direct debit and online

payments. Research carried out during the consultation period confirmed that

a significant proportion of customers choose to make the minimum payment

by these methods. For example, TNS-BMRB research showed that 21% of

consumers who did not make the full payment on their credit card paid their credit

card bill by direct debit and a further 33% paid their bill online.

Some choose to make automated payments to avoid late payment charges and

then top up their payments manually if they want to pay off more of their debt.

However, this requires self-discipline; consumers may find their good intentions

to pay more go by the wayside in the face of pressing expenses. In our view,

however, and based on comments from many individual consumers on this

issue, it is likely that some of the habitual minimum payers who make automated

payments would like to use them to pay more than the minimum, but not the full

amount, and are currently unable to do so.

this is equal to, or greater than, the lenders’ minimum payment).

for consumers to make a credit card payment using another credit card. We have

spoken to the UK Cards Association about this issue and they have assured us

that it is standard practice in the industry not to accept credit to pay for credit.

Under exceptional circumstances a small number of consumers are able to do

this (and indeed consumer research from TNS-BMRB puts the figure at 3% of

customers), but lenders would always make consumers aware of the implications

of their actions. At this point in time, therefore, we do not propose to take any

action in this area although we will keep this matter under review.

groups, suggested that there should be cooling-off periods for store cards

where consumers could reflect on whether they would like to keep a store card

before making any purchases with it. This reflects concerns that consumers are

drawn into expensive borrowing on store cards because of promotional offers

or pressure selling at the check out, without giving proper consideration to the

costs of using a store card to make their purchase. In research conducted by

Chapter 3: Right to Control

31

TNS-BMRB, nearly half of store card borrowers reported that they had made their

decision to apply for a store card whilst talking to a member of staff, yet many

respondents felt that the members of staff they spoke to were fairly ill-informed

about the store cards they were selling.

the interest free period and incur no charges at all. Furthermore evidence from

industry suggests that over half of store card borrowers have either a credit

or a zero balance on their account, and more than half of them use their card

only once. It is therefore not clear that this is an issue for the vast majority

of consumers using store cards. However, the Government recognises that

responsible consumers ought to make a purchase on credit only after careful

consideration, and with all the right information at their disposal.

withdraw from consumer credit agreements made in face-to-face situations.

This will give consumers 14 days to withdraw from their agreement without

giving a reason. This is not the same as a cooling-off period, as it will not prevent

the customer from making a purchase with the store card, but it will allow the

customer an opportunity to reconsider their borrowing once they have made the

purchase. The Consumer Credit Directive will also introduce a requirement on

firms to provide an adequate explanation of any new credit before a consumer

signs the agreement. This means that retail staff encouraging consumers to take

out a store card will have to explain all the key features of the product before a

customer takes out a new card.

store cards should be responsibly sold in circumstances where consumers can

properly reflect on their decision with the right information before them. However,

as we have indicated above, the scale of the problem is unclear, and there is

a risk that introducing a cooling-off period straight away could be bad for both

consumers and retailers, making it very inconvenient for responsible consumers

who have properly thought through their decisions to buy the goods and services

they want on credit, or take advantage of beneficial offers.

represent a significant improvement in the protections for prospective store card

users. For this reason, whilst we are not ruling out the possibility of further action

in this area in future, it is our view the measures introduced by the Consumer

Credit Directive should be given time to take effect before we consider any

additional measures.

32

Chapter 4: Right to Reject

33

that they are open-end products. Lenders can change interest rates in two ways.

Firstly, rates can alter as a result of changes in the cost to the lender of providing

credit to all consumers and, generally, these rate changes would apply across a

whole portfolio. Lenders can also alter interest rates in response to changes in

the “risk cost” of serving a particular consumer, or group of consumers, because

of changes in the perceived risk that those consumers will default (risk-based

re‑pricing).

practice amongst credit and store card lenders of increasing interest rates

on existing debt (re-pricing) without properly explaining why they are doing

so. Despite recent moves by the industry to make re-pricing fairer and more

transparent (through a Statement of Fair Principles), we expressed concerns that

some consumers might be subjected to unjustifiable interest rate rises on existing

debt, and that risk-based re-pricing is still not sufficiently transparent.

unfair interest rate changes, that consumers are given clear information about

how and when their interest rates might change, and that this is a genuine two

way street: rates should go down as well as up. In our consultation we proposed

a number of options in this area:

1. Maintain the Statement of Fair Principles;

2. Further measures to provide consumers with better information about riskbased

re-pricing decisions;

3. Define the factors that it would be fair for lenders to take into account when

changing an individual’s price on grounds of risk;

4. Limit the size and/or frequency of existing debt re-pricing;

5. Prohibit re-pricing of existing debt.

Many would like to see either an outright ban of interest rate re-pricing (option 5)

or a cap on interest rate re-pricing (option 4). Consumer groups and debt advice

agencies, with a couple of exceptions, generally favoured a ban on the re-pricing

Government Response to Consultation

34

of existing debt except where there has been a change in the base rate or LIBOR

or where the consumer has missed a payment (option 5). Consumer groups also

generally felt that the existing Statement of Fair Principles should be improved

and placed on a statutory footing.

where there is no requirement for the consumer to repay over a particular period

of time; the lender does not know when the debt will be repaid and consumers

can keep their card for 20 years or more. In their view that means that if the risk

that consumers will not be able to repay changes over time, then lenders must be

able to change the price to reflect this. Banning interest rate increases on existing

debt could lead to annual fees, higher interest rates for new customers, and

riskier consumers not being given a credit card at all. Card companies said that

the current Statement of Fair Principles was working well and should be allowed

to embed further, although they acknowledged that more could be done to

promote the fact that people have the right to reject the interest rate increase and

pay down their balance at the existing rate of interest over a reasonable period.

Industry also acknowledged that consumers find it hard to understand how riskbased

pricing for credit works, and therefore proposed that they would produce a

leaflet for consumers which would explain how it works.

years, re-pricing decisions have been related to risk and do not appear to be

pushing consumers into financial difficulties. Consumer research by TNS-BMRB

found that although around 13% of card holders receive an APR increase on their

main card per year, the majority of interest rate increases range between 1-5%,

and around 4% of card holders receive an APR decrease each year. A ban on

the re-pricing of existing debt has been introduced in the United States. The ban

only came into force in February 2010, but initial evidence suggests it has had a

significant impact on American credit card users, who are seeing higher interest

rates and reduced credit limits. The UK Cards Association also quoted data on the

impact of the reforms in the US, where there was a 180% increase in accounts

facing an interest rate increase as firms rushed to put interest rates up before the

ban came into force and the average increase was 6.1%.

interest rate increases, yet research conducted by TNS-BMRB found that

consumers were generally in favour of a ban on the re-pricing of existing debt. GfK

NOP research, on the other hand, suggested that consumers favoured solutions

focused on good communications and alternative options for consumers who did

not want to accept the interest rate increase. GfK NOP’s quantitative research

showed that a majority of consumers thought a ban on the re-pricing of existing

debt was a good idea in principle. However, only 26% of consumers would

Chapter 4: Right to Reject

35

still support a ban if it led to higher interest rates in future and only 17% would

support a ban if it led to annual fees.

mixed. Consumer research found that awareness of the right to reject was very

low. Card companies themselves reported that take up of the right to reject varied

from firm to firm, from 1% to 5%. The Lending Standards Board conducted a

review of how the Statement of Fair Principles is working. This found that lenders

could do more to ensure consumers are properly informed about interest rate

increases and their right to reject them.

been increased without a reasonable explanation and who are concerned about

rising interest rates on their existing debt. However, the initial evidence shows

that a ban on the re-pricing of existing debt such as that adopted in America could

lead to worse outcomes for consumers through higher interest rates for new

customers, annual fees and some people finding it impossible to obtain a card at

all. We do not, however, accept the industry’s argument that the Statement of

Fair Principles is working as it should. Clearly there is a lot more that can be done

to ensure consumers are fully able to exercise their right to reject an interest

rate increase. We have therefore agreed with credit and store card companies

outstanding balance at the existing rate over a reasonable period. This doubles

the time consumers have to consider an interest rate increase and take action.

In addition, consumers will be notified at least twice during the 60 days that

they have the right to reject and card companies will tell them how much their

borrowing will cost at the higher rate so they are able to see the real impact of an

interest rate increase when making their decision. Lenders have also committed

that they will not increase interest rates at all for consumers at risk of financial

difficulties. They will work with debt advice agencies to agree how they will

identify those ‘at risk’. These rights will apply to any interest rate increase which

is not directly linked to a change in an external reference rate such as the base

rate or the inter-banking lending rate (LIBOR), and not just to individual risk-based

re-pricing.

limits they must tell them that they have a right to reject the increase and keep

their existing limit. Consumer groups generally felt that the right to reject should

be more clearly explained and more easily implemented. Some cited cases of

consumers being dissuaded from exercising their right to reject, finding it hard to

Government Response to Consultation

36

get through on the phone, or being forced to put a request in writing even if they

had telephone banking services. Moneyfacts argued that it should be possible to

reject a new limit by any channel: by post, telephone or online.

reported having contacted their bank to ask for the limit to remain unchanged,

still a very low figure. Interestingly, a majority of consumers who did contact their

lender after the credit limit increase found it easy to do so. Of those who didn’t

contact their lender, 81% were unconcerned about the limit increase. However, of

the remaining 19%, over half didn’t do so because it would be a hassle.

of increasing limits works, and are generally comfortable taking responsibility

for how much they borrow. However, a majority of those consumers who

might wish to reject a limit increase appear to perceive contacting their lender

as a hassle, and there is evidence that, for a minority of consumers at least,

exercising their right to reject a limit increase is made more difficult than it should

be. The Government believes that the current right to reject is not made clear

enough to consumers or easy enough to take up. We have therefore proposed,

to hold to speak to an adviser during peak periods and need not be concerned that

an adviser might seek to dissuade them from their decision or sell them another

product.

5 Data from 13 issuers representing 96% of the market

Chapter 1: Introduction

37

Government Response to Consultation

38

include the following health warning about the risk of only making the minimum

payment: “If you only make the minimum payment each month, it will take you

longer and cost you more to clear your balance”. The Lending Code also requires

the statement to include an indicative case figure for the amount of interest if only

a minimum payment is made. Store card lenders need to include similar warnings

and estimates of interest. In the consultation document, we set out our concerns

that lenders have not done enough to explain to consumers the implications

of making only the minimum payment. We proposed that consumers could be

provided with better information about the consequences of making a minimum

payment (option 2).

they would be interested in better information. Pretty much all consumer groups

thought that better information provision on minimum payment options would

be a good thing. Many supported the idea of illustrative scenarios. Many industry

players acknowledged that more could be done to improve information for those

consumers who make minimum payments, or who are at risk of doing so, and

proposed a specific targeted information measure to help these consumers.

that the majority of consumers paying the minimum have made a rational decision

to do so. Many consumers pay the minimum because that is all they can afford,

and a significant proportion do so because they have more expensive debts

elsewhere (24% according to GfK NOP, 16% according to TNS-BMRB) or because

they are on a promotional rate (15% according to GfK NOP, 13% according to

TNS-BMRB). Analysis from Argus confirmed that some consumers do make a

rational decision to pay the minimum; in the main (except for the highest risk

band) consumers with balance transfer deals were more likely to make repeat

minimum payments.

use to the vast majority of consumers making full or partial repayments. Such

additional information would be unnecessary and cumbersome. Nor do we think

that any additional information would be of any benefit to consumers making very

Chapter 5: Right to Information

39

occasional minimum payments or who have clear and rational reasons for doing

so. These consumers are unlikely to be at risk of unsustainable debt. However,

we do agree that more can be done to educate habitual minimum payers.

consumers who have made the minimum payment for 6 consecutive months.

We agree with the UK Cards Association that it is a subset of minimum payers

who need to be targeted for more information on minimum payments. We are not

convinced that contact after 6 months of minimum payments is sufficient, nor are

we convinced that the trigger for contact should be paying only the minimum over

a period. Indeed, industry experts have suggested that those consumers who pay

just more than the minimum are also likely to be at risk. Consumers who regularly

repay very small amounts of their debt are using their card in ways which may

be putting them at risk of financial difficulties or incurring high levels of interest

on their debts. In addition, in order to influence consumer behaviour, it is also

important to reach these consumers when they may still have choices available

and to reach them with information that means something specific and real to

each consumer.

those consumers by post or electronic means but will need to do so in writing,

and separately from the monthly statement. This communication will illustrate

how the consumers’ current behaviour is costing them more money and will

explain what they can do to improve their situation, including providing details of

independent sources of advice and support.

it should contain are still to be determined with industry following consultation

with the OFT and consumer groups and testing with consumers.

suggests that consumers are often not given clear enough information about

increases in their interest rate and their right to reject it. A number of respondents

to consultation proposed improvements, for example, the Lending Standards

Board recommended that a separate notification should be sent which makes

clearer that the interest rate is increasing and precisely what the old and new

rates are. Many respondents, including the UK Cards Association, felt there was

scope for improving consumer understanding of risk-based re-pricing.

Government Response to Consultation

40

had had their interest rate increased felt that it was adequately explained. Perhaps

more alarmingly, a third of respondents said they did not know whether their rate

had changed in the last year. Qualitative research also revealed a low awareness

of the practice of risk-based re-pricing, as compared to interest rate increases as

a result of changes in the base rate, and a low awareness of the existing right to

reject, even among those consumers who had had their interest rate increased.

However, of those consumers that were re-priced and felt that they received

an adequate explanation, a majority said that the change was reasonable, even

where their interest rate had increased.

of Fair Principles found that around half of companies did not send a separate

letter to notify the consumer, putting the information on their monthly statement

instead. It found that the quality of communication with consumers about repricing

decisions was unclear in some cases: some firms did not say clearly that

the consumer’s interest rate was increasing, and by how much, but simply told

them that their terms and conditions were changing or what the new rate would

be without making clear that it was going up.

risk-based re-pricing decisions. The Government has therefore secured industry

to consumers facing an interest rate increase at least 30 days before the change.

The communication will explain in clear and simple language how their rate is

changing, that they have a right to reject the new interest rate within 60 days,

and how they can exercise that right if they want to. The communication will be

in the form of a letter, unless consumers have indicated that they would prefer

their bank to keep in touch with them by electronic means. Card companies

have agreed that they will work with consumer groups and debt advice agencies

to ensure that the communications are clear and easy to understand. We also

aware of increases in their credit limit and what they can do to reject them.

Respondents to our consultation suggested a number of ways in which such

communications could be improved. These included explaining why the credit

limit has been increased and what the lender has done to check that the new

limit was affordable, as well as providing information to help consumers decide

whether to reject the new limit, such as illustrations of how much the minimum

Chapter 5: Right to Information

41

payment would go up if the consumer used the higher limit, and how much their

existing borrowing is already costing them.

communication will explain in clear and simple language how their limit is

changing and what they can do if they wish to reject the new limit. The

communication will be in the form of a letter, unless consumers have indicated

that they would prefer their bank to keep in touch with them by electronic means.

Card companies have agreed that they will work with consumer groups and

debt advice agencies to ensure that the communication is clear and easy for

consumers to understand.

industry organisations, argued that one of the most effective means of ensuring

that consumers don’t experience problem indebtedness would be to promote and

encourage more education, at school and in adult life, about these issues.

announced that from September 2011 all pupils from the age of 5 to 16 will be

taught about handling money, savings and the financial skills they need as adults.

These lessons in “economic wellbeing and financial capability” will form part

of the new compulsory personal, social, health and economic education. The

specific programmes of study, which outline the broad topics that will be taught,

will be consulted on later this year. The details of the consultation, including the

timing, will be announced on www.dcsf.gov.uk/consultations. Expectations are

that children aged 11-14 will be taught about borrowing products, including credit

cards, mortgages and loans, with tips on how to pick the deals that suit them

best.

£10 million over three years (2008 – 2011) to support personal finance education

in schools through the My Money programme. This programme provides local

authorities with support and training to help them get personal finance education

into every primary and secondary school under their care.

preventative financial education and impartial, easy to access help and guidance

on money in their adult lives is equally important and complements the provision

of financial education in schools. In April 2009 the Government and the Financial

Government Response to Consultation

42

Services Authority launched a large pilot Money Guidance service, called

Moneymadeclear, in the North West and North East of England. The service

delivers free and impartial information and guidance on personal finance. It

provides detailed information about credit cards, including a new impartial

credit card comparison table to be launched shortly on its website. The service

is available to all, but targeted at those most vulnerable to the consequences

of poor financial decision making. The Government launched national roll‑out

of the service in March 2010 and the Government and FSA have made a

joint commitment to put forward £20 million in 2010-11 to support national

implementation of the Money Guidance service. This will allow the service to help

1 million people manage their finances better.

establish a new independent consumer finance education body. This will take

forward and expand the reach and profile of the FSA’s financial capability work to

date and will lead national implementation of the Money Guidance service.

43

Government Response to Consultation

44

increased transparency outlined in the four areas covered by the consultation,

there should be additional measures to improve transparency. The Government

suggested three specific ideas in the consultation, namely providing consumers

with an annual statement about their credit and store card usage, developing a

benchmarking or labelling system for credit and store cards and designing a basic,

cheap and accessible credit card that consumers could use with confidence.

that there is merit in improving information to consumers, but many cautioned

against the risks of information overload and the risk that too much information

can actually harm consumers. Some respondents also had reservations about

how these proposals could be implemented in practice, particularly given the

complexity of credit and store cards, and many stressed the importance of testing

any proposals directly with consumers before implementation.

Government’s aim was to deliver tangible and real benefits to consumers. We

want to make it easier for consumers to compare credit and store cards, to

understand better their purchase and borrowing behaviour and to be able to make

a more informed decision on their use of credit and store cards.

consumer groups to develop this and to consider its content and format. The

annual statement will give consumers clear information about how much it has

cost them to use their card over the year, including information on all interest and

charges for the year.

statement should be available online where online facilities are available and

where consumers have signed up to these. This will help facilitate the ability of

consumers to compare the cost of their current card with other offers online,

including through the FSA’s impartial Moneymadeclear credit card comparison

website when this is available. It is also important, and this was highlighted by a

number of respondents to the consultation, that the annual statement should be

available in hard copy for those consumers who do not have online accounts.

Chapter 6: Right to Compare

45

consumer groups over the coming months. We also agree with the many

respondents who emphasised the importance of consumer testing an annual

statement. This is clearly a prerequisite for its development. However, unless

there is convincing evidence that consumers would not materially benefit from an

commissioned consumer research, carried out by GfK NOP, which showed that

there is a need for greater fairness, transparency and clarity to help consumers

Consumers were particularly positive about the suggestion for simpler labelling.

take forward a labelling scheme, there are important issues that need to be

considered about the practicalities of doing so. We are mindful of the many

ways in which consumers can currently make informed comparisons of credit

and store card products. There are already best buy information and tables,

and an impartial online credit card comparison tool is being developed for the

FSA’s Moneymadeclear service. The forthcoming Standard European Consumer

Credit Information Form will also provide consistent and comparable information

on cards. Concerns raised by some respondents to the consultation that the

complexity of credit and store cards do not lend themselves well to a simple

labelling scheme. We agree that there are challenges in simplifying a financial

product that is used by consumers for different reasons and in different ways, and

which individual consumers may use in different ways over time. However, these

issues do not appear to be insurmountable and it would not be impossible to

develop a labelling or benchmarking scheme that would be useful and beneficial.

6 Unpublished research

Government Response to Consultation

46

believe that this could incorporate many of the issues that have been addressed

in this consultation and be a means of providing a credit card product, the features

of which are aimed at preventing problem debt. Such a basic credit card could be

targeted at the most financially vulnerable who may otherwise struggle to gain

access to credit cards. It would therefore not disproportionately affect the vast

majority of customers who may not benefit from these kinds of features.

the practicalities of taking forward the idea of a basic credit card. These include

the argument, made by both lenders and some consumer groups in responses to

the consultation, that it may be difficult to make a basic credit card a competitive

product and that other credit card products currently on the market may already

deliver many of the benefits that we are keen to see in a basic credit card. We

are also conscious of evidence which shows that, where lenders have developed

such products in the past, there has been little take-up by consumers.

improve simplicity and transparency of financial products.

47

Government Response to Consultation

48

the timing for when these will be available to consumers and how they are being

implemented.

Consumers’ monthly payments

will always pay off their most

expensive card debt first. This

fully reverses widespread practice

of allocating payments to the

cheapest debt first.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

Consumers opening new credit

card accounts will pay minimum

payments covering at least

interest, fees and charges, plus

1% of the principal.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011.

Some lenders

may require

longer

because of

technical

difficulties

Consumers will have the right to

tell their card company at any time

that they want to reduce their

current credit limit.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

Consumers will be able to tell their

card company at any time that

they don’t want to be given credit

limit increases at all in future.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

The Consumer Credit Directive

will introduce a new legal

requirement to perform a

creditworthiness assessment

before offering a significantly

higher credit limit.

Consumer Credit

Directive (legislation)

January 2011

Card companies will observe a ban

on limit increases for consumers

at risk of financial difficulties.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

Consumers will be able to set up

an automated payment to pay any

amount they choose on a regular

basis.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

Chapter 7: Next Steps

49

Consumers will now have 60 days

to tell their card company they

want to reject an interest rate

increase, close the account and

pay down the outstanding balance

at the existing rate.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

Consumers will be able to reject

any increase in their credit limit

at any time. Card companies will

make it as easy as possible for

people to do this, in particular by

automating this process.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

A new separate minimum

payments warning communication

will be sent to consumers who

are using their card in ways

which may be putting them at

risk of financial difficulties or

incurring high levels of interest on

their debts, for example making

repeated low payments.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

A new interest rate increase

communication will be sent to

consumers facing an interest rate

increase at least 30 days before

the change.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

A new credit limit increase

communication will be sent to

consumers offered an increase in

their credit limit at least 30 days

before the change.

Lending Code and

changes to lenders’

terms and conditions

where appropriate

January 2011

Card companies will work with

debt advice agencies to agree

how they will identify consumers

at risk.

Industry/Debt Advice

Agencies working

group

June 2010

New responsible lending

requirements through the

Consumer Credit Directive will

ensure new standards for the

sale of credit products. These

will particularly impact store card

providers and others providing

retail credit who will need to

ensure that when they are

promoting their products at point

of sale, their staff are sufficiently

well trained and the environment

is properly conducive to meeting

these new standards.

Consumer Credit

Directive (legislation)

End January

2011

Government Response to Consultation

50

Card companies will work

with consumer groups and

the Government to develop an

annual statement which will give

consumers clear information about

how much it has cost them to use

their card over the last year.

Industry/Consumer

Group/Government

working group

Timetable for

roll-out to be

announced by

January 2011

longer term commitment to place

these principles on a statutory

footing.

Legislation TBC subject to

Parliamentary

timetable

Annex A: List of Consultation Questions

51

Annex A: List of Consultation Questions

of the UK credit and store cards markets, including in particular:

consumers

firms

on both consumers and lenders.

order of payment allocation and its implications.

guidance, provide sufficient consumer protection in this area?

Would it sufficiently address consumer detriment?

the longer term cost?

proportional basis?

Government Response to Consultation

52

the longer term cost?

expensive debt first?

the longer term cost?

advances first?

the longer term cost?

guidance, provide sufficient consumer protection in this area?

and how often could it be provided?

Would it sufficiently address consumer detriment?

the longer term cost?

Annex A: List of Consultation Questions

53

payment? How might it impact on consumer repayment behaviour?

the longer term cost?

payment, for example, if it were raised to 5%? How many of these consumers

would be unable to meet these higher repayment levels? How many consumers

holding balances on more than one credit card are likely to be affected?

of consumers?

the longer term cost?

in the level of minimum payments on cardholders?

associated with financial difficulties?

Guidance, provide sufficient consumer protection in this area?

Government Response to Consultation

54

consumers?

cardholders to be more proactive in managing their credit limit?

the longer term cost?

address the issues in this area?

preserved?

the longer term cost?

significantly worse credit risk than consumers that do not?

apply to all consumers?

are any risks?

the longer term cost?

on both consumers and lenders?

rectify the problems identified in relation to unsolicited credit limit increases?

Annex A: List of Consultation Questions

55

implications for low and grow lending?

increases?

chances of getting the card they want?

the longer term cost?

prefer?

Statement of Principles has been effective. In particular, we would welcome

evidence since November 2008 of:

Principles on the scale and nature of re-pricing activity;

Principles and able to exercise them effectively;

take up of the option to pay down their balance at the existing price, take up of

alternative products, switching);

explanations provided to them by lenders;

FOS) and the nature of those complaints;

Government Response to Consultation

56

would it be most appropriate to provide additional information (e.g. pre-contract,

monthly statements, when customer requests)?

information overload?

the longer term cost?

be sufficient to address problems reported by consumers?

changing an individual’s price on grounds of risk?

debt? What should these be?

What should these be?

the longer term cost?

Annex A: List of Consultation Questions

57

the longer term cost?

better information about credit and store cards.

to all consumers or only to a subset of consumers? What information should be

included in such a statement?

What would be the costs of providing such a statement? How could we ensure

that consumers without internet access also benefited?

beneficial to consumers? What might such a card look like?

cards? Could this be taken forward on a voluntary basis pending revised EU

legislation?

Government Response to Consultation

58

Annex B: List of Respondents

In addition to over 900 comments received online and by email, there were 35 formal

responses to the public consultation. These are listed below, with the exception of 1

respondent who wished to remain anonymous.

American Express

Barclaycard

British Retail Consortium (BRC)

Callcredit Ltd

Capital One

Confederation of British Industry (CBI)

Citizens Advice

Citizens Advice Scotland

Consumer Credit Counselling Service (CCCS)

Consumer Focus

Credit Action

Finance and Leasing Association (FLA)

Financial Services Authority

Foundation for Information Policy Research

Home Retail Group plc

HSBC

Islington Debt Coalition

Knowsley Metropolitan Borough Council

Local Authorities Coordinators of Regulatory Services (LACORS)

Lending Standards Board

Lloyds Banking Group

MBNA – Bank of America

Money Advice Trust

Money Facts Group plc

Money SavingExpert.com

Money Supermarket.com Financial Group Ltd

Nationwide Building Society

R3

Annex B: List of Respondents

59

Royal Bank of Scotland (RBS)

The Consumer Council

UK Cards Association

University of Warwick

Vanquis Bank

Which?

In addition to the above named organisations 204 formal responses from individual

consumers were also received. These have not been named in this list.

Government Response to Consultation

60

Annex C: List of Organisations BIS met

February 2010

2010

Representatives – 6 January 2010

Minority Staff – 6 January 2010

Annex C: List of Organisations BIS met

61

Government Response to Consultation

62

Annex D: Glossary

Allocation of Payments A practice whereby any credit or store card payment

from a consumer is allocated to the debt incurring the

lowest interest rate first.

Balance transfer deals A balance transfer deal allows consumers to transfer

some of their debts and pay the sum off at a 0% interest

rate for a set period of usually between six and 14

months. After this period ends, the balance begins to

attract interest.

Base Rate This is now officially called the bank rate. It is the

main interest rate in the economy, set by the Bank Of

England, upon which others’ rates are based.

Credit Card A card issued by banks, retailers and other financial

institutions which allows the card holder to make

purchases on credit. A credit limit is established on

an individual basis and interest is charged on the

outstanding balance.

Credit Card Summit This took place in November 2008 and was chaired by

the Consumer Minister and attended by all key players

in the credit and store card market. They agreed a

Statement of Fair Principles which governs how and

when they will change a customer’s interest rate when

their individual risk profile alters.

Credit Limit The maximum spend a consumer can make on a credit

or store card.

Credit Reference Agency Credit reference agencies provide lenders with

information about potential borrowers, which they then

use to make lending decisions. The information shared

may include information about borrower’s previous credit

history. They hold certain information about most adults

in the UK. This information is called your credit reference file or credit report.

Annex D: Glossary

63

Consumer Credit Directive The Consumer Credit Directive is EU legislation which

needs to be adopted by all EU countries by June 2010.

It aims to create a common credit market across the EU

and to maintain high levels of consumer protection.

Finance and Leasing Association The Finance & Leasing Association is the leading

trade association for the asset, consumer and motor

finance sectors in the UK. Its members include banks,

building societies, finance houses, credit and store card

providers, motor finance companies and asset finance

and leasing companies.

Financial Ombudsman Service The Financial Ombudsman Service is a public body set

up by Parliament. It is the official independent expert in

settling complaints between consumers and businesses

providing financial services.

Financial Services Authority The Financial Services Authority is the main City

regulator whose job is to protect investors’ interests.

Irresponsible Lending Guidance The draft Guidance was launched for public consultation

by the OFT in July 2009. The consultation closed on 21

October 2009 and the OFT expects to issue its Guidance

around the end of March 2010. The Guidance will

identify lending behaviours and practices which the OFT

considers may be irresponsible.

Lending Code A voluntary code of practice which sets standards for

financial institutions to follow when they are dealing with

their personal and small business customers in the UK.

Lending Standards Board The LSB is responsible for the Lending Code, and helps

firms to interpret and meet its requirements. It also

monitors and enforces compliance with the Code, and

identifies any gaps or deficiencies in the Code that could

lead to consumer detriment.

Minimum Payment The minimum amount that a consumer must pay each

pay period (usually monthly) on the outstanding debt on

their credit or store card.

Government Response to Consultation

64

Office of Fair Trading The OFT is the UK’s consumer and competition

authority. Its mission is to make markets work well

for consumers. It is a non-ministerial Government

department.

Risk-based re-pricing This is the practice by which interest rates are altered

in response to changes in the “risk cost” of serving a

particular consumer or group of consumers because of

changes in their credit score.

Store Card A card issued by a retailer or group of retailers

(sometimes financed by a third party lender) which

only allows the card holder to make purchases on

credit in certain stores. A credit limit is established

on an individual basis and interest is charged on the

outstanding balance.

UK Cards Association The UK Cards Association is a trade body that gives

credit, debit and charge card issuers, and merchant

acquiring banks a forum where they can work together

on non-competitive issues.

US CARD Act 2009 The Credit Card Accountability Responsibility and

Disclosure (CARD) Act of 2009 or is a federal law passed

by the United States Congress and signed by President

Barack Obama on May 22, 2009. It is comprehensive

credit card reform legislation that aims to establish fair

and transparent practices relating to the extension of

credit under an open end consumer credit plan, and for

other purpose

Annex E: Contact Details

65

Annex E: Contact Details

In case of enquiries please contact:

CCP

Department for Business, Innovation and Skills

1 Victoria Street

London

SW1H 0ET

Tel: 020 7215 6146

Fax: 020 7215 0357

Email: paul.liddle@bis.gsi.gov.uk

This Government response is available electronically at www.bis.gov.uk/creditconsultation/

response. You may make copies of this document without seeking permission. Printed

copies of this Government response can be ordered from:

ADMAIL 528

London SW1W 8YT

Tel: 0845-015 0010

Fax: 0845-015 0020

Minicom: 0845-015 0030

www.bis.gov.uk/publications

Other versions of this document can be made available on request in Braille, other

languages, large fonts and other formats.

Printed in the UK on recycled paper containing a minimum of 75% postconsumer waste

Department for Business, Innovation and Skills. www.bis.gov.uk

First published March 2010. © Crown copyright. BIS/0.05k/03/10/NP. URN 10/768