How the latest changes in regulation affect credit card deals?
The current financial meltdown has taken everyone by surprise at its speed and ferocity of impact and has made the banking institutions and credit card lenders take a long, hard look at how they do business. The real killer in this current downturn has been how quickly the ordinary man in the street has been affected by the crisis and how vulnerable everyone is to its affects. The reason is simple " this recession has been the result of easy credit during the boom times; times that people were led to believe would continue indefinitely. The stark reality of the situation has now started to impact on a micro as well as a macro level.
The last few weeks have seen the government enforce new regulations on the credit card lenders and financial institutions in an attempt to take some of the pressure off the public and give them a little bit of wriggle room when it comes to sorting out their finances. Previously the credit card lenders had come under considerable criticism for their heavy handed methods of dealing with those whom found themselves in financial difficulties and defaulted on payments. But with the beginnings of what looks to be a longer term financial winter it is clear that many more people will struggle in the coming months to meet their financial commitments. To this end the government has stepped in and insisted that customers have time to consult independent advisors and have more protection before becoming subject to action from lenders.
Under the new regulations that have been implemented cardholders will be given a 30-day breathing space in which to take free advice from the Citizens Advice Bureau. This should help them bring their finances under control. This free, impartial advice is designed to negotiate a plan between cardholders and lenders and come up with a realistic and sustainable repayment plan. If they cannot come to an agreement within this time then a second 30-day buffer period is put in place during which time lenders cannot issue payment demands. This gives customers two months to come up with a workable plan, but if no agreement is reached within this time then the picture becomes much bleaker.
Another important regulation introduced by the government is an insistence that credit card companies do not change interest rate charges during the first 12 months of an offer being taken up. This regulation has come about as the direct result of complaints by customers who have been subject to significant raises in interest rates only weeks after taking up a promotional offer. Although increasing the interest rate is perfectly acceptable in law, the government may have seen it as somewhat unethical on the part of the lenders, particularly during a time of economic hardship and also at the point where the Bank of Englands base interest rate is at its lowest in its history. This is why they have insisted that interest rates remain stable for at least the first year of the offer.
These regulations, although perhaps seen as a knee-jerk reaction by the financial institutions, are not entirely an altruistic act on the part of the government. The intention is to keep the credit card market viable but to minimise the exposure to bad debt for the lenders and to give the public some reassurance that they will not be subject to excessive interest rate increases and have a little room to manoeuvre if personal circumstances change for the worse. Combined with the possibility of interest rate capping, these actions may cause the credit card lenders to become stricter over lending criteria, making it more difficult to get credit in the first place. However, for those who have a good credit rating and are willing to take full responsibility for their finances, there are still some very good credit card deals to be had and the lenders still want to encourage custom, even in the middle of a recession. As long as the economy keeps spending, the full brunt of a complete economic collapse can be avoided.
How quickly these regulations have a direct effect on the credit card industry remains to be seen, although if the previous indicators are anything to go by they will be implemented very quickly. Credit card lenders will be looking to prevent future bad debt from becoming an issue and subsequently will be looking at credit history, financial stability and future prospects of their customers much more closely before granting credit. The credit card industry is going through a transitional period which, if handled properly, will mean a much more stable and sustainable market in the years to come. It also means that those who do find themselves in trouble have an opportunity to deal with the situation before it becomes a major problem.
The last few weeks have seen the government enforce new regulations on the credit card lenders and financial institutions in an attempt to take some of the pressure off the public and give them a little bit of wriggle room when it comes to sorting out their finances. Previously the credit card lenders had come under considerable criticism for their heavy handed methods of dealing with those whom found themselves in financial difficulties and defaulted on payments. But with the beginnings of what looks to be a longer term financial winter it is clear that many more people will struggle in the coming months to meet their financial commitments. To this end the government has stepped in and insisted that customers have time to consult independent advisors and have more protection before becoming subject to action from lenders.
Under the new regulations that have been implemented cardholders will be given a 30-day breathing space in which to take free advice from the Citizens Advice Bureau. This should help them bring their finances under control. This free, impartial advice is designed to negotiate a plan between cardholders and lenders and come up with a realistic and sustainable repayment plan. If they cannot come to an agreement within this time then a second 30-day buffer period is put in place during which time lenders cannot issue payment demands. This gives customers two months to come up with a workable plan, but if no agreement is reached within this time then the picture becomes much bleaker.
Another important regulation introduced by the government is an insistence that credit card companies do not change interest rate charges during the first 12 months of an offer being taken up. This regulation has come about as the direct result of complaints by customers who have been subject to significant raises in interest rates only weeks after taking up a promotional offer. Although increasing the interest rate is perfectly acceptable in law, the government may have seen it as somewhat unethical on the part of the lenders, particularly during a time of economic hardship and also at the point where the Bank of Englands base interest rate is at its lowest in its history. This is why they have insisted that interest rates remain stable for at least the first year of the offer.
These regulations, although perhaps seen as a knee-jerk reaction by the financial institutions, are not entirely an altruistic act on the part of the government. The intention is to keep the credit card market viable but to minimise the exposure to bad debt for the lenders and to give the public some reassurance that they will not be subject to excessive interest rate increases and have a little room to manoeuvre if personal circumstances change for the worse. Combined with the possibility of interest rate capping, these actions may cause the credit card lenders to become stricter over lending criteria, making it more difficult to get credit in the first place. However, for those who have a good credit rating and are willing to take full responsibility for their finances, there are still some very good credit card deals to be had and the lenders still want to encourage custom, even in the middle of a recession. As long as the economy keeps spending, the full brunt of a complete economic collapse can be avoided.
How quickly these regulations have a direct effect on the credit card industry remains to be seen, although if the previous indicators are anything to go by they will be implemented very quickly. Credit card lenders will be looking to prevent future bad debt from becoming an issue and subsequently will be looking at credit history, financial stability and future prospects of their customers much more closely before granting credit. The credit card industry is going through a transitional period which, if handled properly, will mean a much more stable and sustainable market in the years to come. It also means that those who do find themselves in trouble have an opportunity to deal with the situation before it becomes a major problem.
About the Author:
Tim Jones writes for various financial based websites and likes to report on changes and events in the credit card market. You can find further information on the credit card here.
posted by Debt Consolidation Loan at
4:31 AM
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