Consumer Minister Kevin Brennan spent an hour answering questions on Goverment plans to give people more control of credit and store card borrowing and to look at the way lenders are regulated.
- Find out more about the Government’s credit and store card consultation
Read the transcript
Moderator says:
Kevin Brennan has just arrived at Downing Street so we will be starting the webchat shortly.
Ann Bull:
Can the minimum amount payable each month be raised to 5%? This could help people not get in too deep by thinking more about what they can afford.
Kevin replies:
Hello Ann. Thanks for your question. It is a bit daft that it could take you longer to pay off some credit card debts, if you only pay the minimum, than it would to pay off your mortgage. We are asking people whether we ought to do exactly what you suggest. Although if we do decide to raise the minimum we want to make sure that it’s brought in in such a way that it doesn’t make matters worse for people trying to manage their debts.
David Turner:
I understand that in America credit card companies have to put customer’s payments towards the most expensive debts first, which helps people pay off their debts faster as higher interest is avoided. Do you agree that it is unfair that our credit cards dont do the same, and when please can UK citizens expect the same protection as our US cousins?
Kevin replies:
I am concerned about this David, and in our consultation we are suggesting that we should do a similar thing to the changes that have been made in America. A lot of people don’t realise that most credit card companies use any money paid by the customer towards the cheapest debt first rather than the most expensive. When people are told this they feel cheated. We’d like to hear from people if they think we’re right to suggest this change.
Phil Jones:
You want to ban unsolicted credit cheques immediately, which is great, but you are holding off on the other aspects of the crackdown. To act decisively to prevent irrssponsible lending, wouldn’t it be better to include other measures like banning companies from giving credit limit increases without a customer request in the Financial Services Bill?
Kevin replies:
You’re right that we are banning sending out unsolictied credit card cheques, but we did consult on that because it’s always important to make sure that there are no unintended consequences when you bring in an important change. However, we are committed to taking firm action to improve the position for customers and help put them back in the driving seat and we’re consulting on the proposal you suggest.
Doris Fone:
I am very concerned at the way in which store cards are pressed on the customer by various larger retailers. As soon as you hit the till the obligatory questions is put ‘would you like one of our store cards’ often with the addition of ‘ you will get an extra 10% off’ etc. What is not mentioned is that many of these stores card are way above what could be considered a reasonable APR and can only be described as pure racketeering. How does the government intend to deal with this now and in the future and what measures will be put into place to curb this financial exploitation of often ignorant and ill informed consumers?
Kevin replies:
That’s a very important point Doris. I have called on credit and store card companies to clean up their act to make sure customers aren’t exploited by complex and confusing terms and conditions. We are introducing new requirements to explain financial products like store cards more fully to customers, and make it an obligation to check customers’ credit worthiness more thoroughly.
Mike Jaimes:
I have heard talk in the media that the government are trying to implement a ruling that banks and credit card companies have to increase their minimum payment demands so that people are paying off their balances faster. Would it not be better for the consumer if the government legislates a cap on what are sometimes extortionate interest rates charged by these companies?
Kevin replies:
It’s easy to understand why a rate cap sounds like an attractive idea as it’s a tough sounding measure. When we’ve looked at this in the past the evidence has suggested that where this has been tried out in other countries, it can push people into borrowing from less suitable products, or in fact end up going to illegal loan sharks. Nevertheless we are looking at this issue again closely, and the Office of Fair Trading is conducting a review of the evidence around high-cost credit and interest rate caps.
Matt Watkinson:
When will the banks pay back those unfair charges? We wouldn’t try to live on credit if they’d do the decent thing
Kevin replies:
We should have some news quite soon from the Supreme Court on the fairness of charges on bank overdrafts. As soon as we have the Court ruling the Government will make clear what next steps we intend to take.
kitty:
Is there not a risk that the proposed changes will make it more difficult and expensive to get credit, even if until now you have been a reponsible borrower? What is the Government planning to do to make people borrow more responsibly?
Kevin replies:
We want to encourage both responsible lending and borrowing. We have put a lot of resources into providing better money advice for people through places like Citizens Advice and the Money Advice Trust. We have also done more to encourage the growth of credit unions which are community finance institutions which encourage responsible saving and borrowing.
But I am clear that the credit and store card companies have to improve their business practices as well. In the New Year the OFT will be publishing its guidance on irresponsible lending which we expect the industry to follow. We are also developing a free, independent price comparison site for credit cards to help consumers make responsible decisions.
alasdair ford:
can regulations be introduced to force c/c companies to clearly identify the length of time and total interest paid when a cardholder pays the minimum each month e.g. if you pay the minimum charge this debt will take 21 years to clear and cost £15,000 in interest. This should be illustrated at point of application and at the head of any communication from the credit card company for both the current and maximum balances. the current voluntary statement is meaningless
Kevin replies:
Yes Alasdair. One of our suggestions in the consultation is that there should be a clear indication on your credit card bill of how long it would take you and what it would cost you if you only paid off your card at the minimum rate. In addition to that we are very interested in the idea of an annual electronic statement setting out very simply and clearly the cost of your credit card to you as a consumer.
Richard Koch:
Do you worry that by introducing some of these measures credit card companies are likely to respond with new fees and charges, reduce soem of their offers and introduce new fees and charges?
Kevin replies:
I think the most important thing is charges are clear, transparent and not so complicated that they confuse or mislead the customer. Credit card companies are businesses and they are entitled to make a profit, but they shouldn’t do so by presenting their products in such a way that it is difficult for consumers to understand what is the true cost of borrowing using a credit or store card. I want to see a new and more responsible attitude from credit and store card companies that puts consumers back in the driving seat.
Paul Harries:
Hi Kevin, on your earlier answer to David Turner on paying off higher interest first, I got ripped off when I took out a 0% balance transfer, and then had to use the card to book a flight. When I got my statement I paid in the cost of the flight but they took the money off my 0% offer, and then charged me interest on the flight. They push 0% offers as a fantastic deal but dont tell you about the hidden costs when they rip you off like this, its not right they can get away with this. Will you make sure that such offers are included when you make them put payments towards the highest costs first?
Kevin replies:
Very good point Paul, and I’ve been through a similar experience myself feeling a bit cheated when taking out a 0% offer and then finding it’s not quite as attractive as it first seems. The public’s response to our consultation so far has shown that this is an issue people feel very strongly about, and you are absolutely right that 0% offers should be included in any proposal to put payments towards the highest cost first.
Jack Thomason:
How do you combat the problem of Unsolicited credit increases? Are more laws, plus making it easier to stop such actions on behalf of the consumer, the way forward or is it not that simple?
Kevin replies:
We suggested that credit card companies shouldn’t be able to put up people’s credit limit without asking them first in our consultation. A lot of people tell me that they find it really irritating when this happens, and that it can make some people think that the credit card company is suggesting they should be borrowing more than they already are using their card. I hope that the industry will come forward with its own proposal on this as it does annoy consumers but we are prepared to legislate if necessary.
Sharon Coleman:
Are the government looking at the credit card companies hiking up interest rates where customers have fallen in to difficulty because they are perceived to be a higher risk, rather than helping the customer by coming to repayment arrangements ?
Kevin replies:
Yes Sharon we are. We already got the indsutry to agree not to do this without giving people fair warning and the opportunity to pay off what they owe. However, we are proposing to go further in the consultation. We are suggesting that this practice might be banned and would be interested to hear people’s views on that proposal.
Thanks very much everyone for all your questions and do take part in the online part of our consultation which can be found at www.bis.gov.uk/creditconsultation
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