Close the stable door, I think the horse has bolted
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In a sensible and well thought out move that is, however, about ten years too late, the government is planning a crackdown on the credit card industry to curb the temptation to get into debt.
Legislation will be introduced to stop card firms from raising the credit limit of a customer when this has not been requested. Ministers also want to ban firms from sending out unsolicited credit card cheques to consumers.
As a point of interest, the outstanding balance owed on credit cards in Britain currently stands at £53bn.
The UK payments association, Apacs, immediately leapt in to condemn this suggestion and said that its members did not raise the credit limits of borrowers with financial problems. It did not point out that the only reason this is true is that they are concerned they would lose the money.
The Consumer Affairs Minister, Gareth Thomas, has said, “We are concerned that people may be tempted to borrow irresponsibly if credit card companies increase borrowing limits without this being requested by customers, or send out unsolicited credit card cheques.”
Credit card cheques are quite simply a marketing gimmick. They are usually sent, unsolicited, to customers who are then invited to use them for purchases or payments, and who then settle the amount on their next credit card bill.
Simple enough perhaps, but they commonly carry more expensive charges than the cards, and items bought with them do not enjoy the same protection against goods being faulty.
Back in 2006, the credit card industry came under pressure from the Office of Fair Trading (OFT) and the government to rein in the practice of mass-mailing blank credit card cheques to customers.
As a result of this pressure, a new code of practice was agreed by the banking industry in December 2006. The card companies agreed to “assess a customer’s suitability before sending credit card cheques”, as well as giving clear information on the cost of using them.
The informative Moneynet.co.uk has said they find that people under financial pressure often see a credit card cheque as a way of buying some breathing space. It also saves them having to admit to their money problems or speak to anyone about it, and because of that, they are prepared to pay the high costs associated with this type of borrowing.
Unfortunately the reality is that they are just delaying the inevitable and they will eventually run out of credit, but will be faced with a far larger pile of debt.
The industry defends the cheques as an alternative way of drawing on a card account where the card itself it not accepted, for instance by a tradesman.
Apacs says only 7% of the cheques sent out are actually used, and points out that they draw on a customer’s existing credit limit, rather than increasing it.
There are now two lobbies vying for the government’s attention as it draws up the regulations. The loony left backbenchers in Parliament want interference in the market and excessive regulation while Apacs and its members want to remain free to rip off every mug they can. The role for the government now is to find a path towards discipline in the credit card industry but without excessive interference in the market.
