The cost of your credit card could be about to fall considerably, thanks to new consumer rights announced this week.
This will impact the 30 million UK credit card customers holding 58 million cards.
The credit card industry also estimates that 62% of all UK adults have at least one credit card. The Government estimates the changes could save consumers £296 million a year.
Credit card holders will be offered greater protection from spiralling debts, although the changes are watered down from original proposals. In particular, consumers will be given 60 days to reject changes in the interest rates charged on their existing debts and will also be able to opt out of any increases in their credit limit.
The new changes will come into force by the end of January 2011 at the latest and include:
Ensuring that the highest cost debt on a credit card is paid off first. The move reverses the current typical industry practice under which most credit card providers use repayments to pay down the cheapest debt first, which considerably increases the amount of interest people pay during the lifetime of their balance.
A new 30-day window to allow people to opt out of any unsolicited increases in their credit limit. Cardholders will have the right to choose not to receive unsolicited credit limit increases in future, and they will be able to reduce their limit at any time. A 60-day period for people to reject a change to the interest rate on their existing debt. If they reject it, they must then close their account, with "reasonable" time being given for them to pay off their debt or move it to another lender. They will also be notified twice before the increase occurs. They will continue to have the right not to accept the rate increase if they do not use their card again, and gradually repay the outstanding balance. More than six million people had their credit card rates increased last year. Minimum repayments for people opening new credit card accounts will be set so that they cover interest, fees and charges and at least 1% of the outstanding balance. This is likely to be an increase from the current level of repayments which are typically set at around 3% of the outstanding debt. Existing credit card accounts will maintain their current rules on the level of minimum repayments.