Since the start of the year there have been a whole host of changes to how credit cards are sold and administered by banks and credit card companies. But while the rule changes are good news for consumers there is one snag that everyone should be aware of. So I’ve summed up the changes in a neat list to make things easy for you.
The latest credit card rules changes explained
I’ve split the list of changes into two parts. The first part relates to voluntary changes in practice methods following an agreement between the Department for Business Innovation & Skills (BIS) and the credit card companies, effective from the start of the year. The second part of the list relates to a legal change brought about by European legislation called the Consumer Credit Directive which came into affect from the 1st February 2011. And it is in the later part where a particular change is to the detriment of people applying for a new credit – so read on.
Voluntary changes (with effect from January 2011)
- An end to the repayment profiteering by lenders - Under the new rules the most expensive debt on your credit card will always be paid off first. Many credit cards companies used to make more profit from their customers by applying monthly payments to the cheapest debt first. Typically the payments were applied against debt incurred whilst on a 0% introductory offer, leaving any other debt racking up high interest. They can no longer do this.
- Minimum monthly repayment change - In the future the minimum monthly payment on new cards will be set so that you are always paying off some of your debt each month. Over the past few years minimum payments have been allowed to drift ever lower, resulting in some cardholders never actually paying off any of their debt each month.
- End to unsolicited credit card cheques - Credit card companies can no longer send out unsolicited cheques – which they currently do to encourage people to get into debt.
- Ability to reject interest rates increases - Credit limits will only be increased after affordability checks have been carried and 30 days notice given. Also any rate increase must be communicated 60 days prior to implementation, the customer can decline any increase, close their account and pay off any debt at the old rate. There will also be more flexibility when you set up a monthly payment amount of your choosing and more detailed communications about your account.
Changes brought about by European legislation called the Consumer Credit Directive (with effect from February 2011)
- Less people to get the advertised interest rate – The advertised APR (annual percentage rate) can be used it to compare different credit and loan offers. So generally speaking the lower the APR the better the deal. Previously the law stated that the APR advertised by lenders had to be available to two thirds of applicants. The remaining third of applicants could be rejected or offered a higher rate. But the new EU rule has reduced this ‘acceptance limit’ to just 51% of applicants. So now under new rules less people are likely to get the advertised APR which is a huge step backward in my book.