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Credit Cards: Interest Rates

Volume 488: debated on Tuesday 24 February 2009

To ask the Minister of State, Department for Business, Enterprise and Regulatory Reform what steps his Department is taking to ensure that credit card companies do not charge exorbitant interest rates. (256259)

The Government fully understand the recent concerns over high interest rates charged by some credit card lenders. We secured agreement from credit card lenders to develop fair principles for any interest rate increase they introduce on reviewing an individual’s account. These came into force in January 2009 and provide extra protections when a customer or group of customers’ interest rate is changed as a result of a perceived change in their ability to repay their debts.

Where a lender increases their rates, customers will be given the option to close down their account and repay their remaining balance at the existing rate of interest. Lenders also agreed not to increase rates for customers who have failed to make two or more consecutive minimum payments, where an agreed repayment plan is in place for the account, or where lenders have been notified by a not-for-profit debt advice agency that the customer is in serious discussion with it.

Credit card lenders will also give a breathing space of up to 60 days to borrowers in difficulty. During this time lenders will not commence debt collection proceedings, giving borrowers time to agree a repayment plan with the help of a not-for-profit debt advice agency.

We have also implemented a number of measures to provide vulnerable and low-income consumers with access to affordable credit and free debt advice. £80 million has been invested in the Growth Fund scheme to support loans to low-income families, and £130 million has been allocated to expand the provision of free debt advice for the financially excluded through the Financial Inclusion Fund. The Government will continue to monitor the credit market closely through the new Consumer Finance Forum, bringing together representatives from the financial services industry, consumer groups and Government. This Forum will meet regularly to address issues facing borrowers during the downturn.