Debts & Loans

The Government has forced leading credit card companies to give more help to customers who are heavily in debt.

Lord Mandelson, the Business Secretary, met credit card providers and charities on Wednesday to push for fairer terms for credit card borrowers struggling to make repayments. In particular, he demanded a review of the practice by some credit card providers of increasing interest rates on cards with little warning.

In a joint statement after the Credit Card Industry Summit, the UK's biggest credit card companies, including Barclaycard, Santander, Lloyds TSB and Capital One, agreed to offer customers struggling with big credit card bills 30 days to set up a repayment plan with a debt adviser.

Credit card providers also promised to reconsider the way that interest rates are applied on the same card to different customers, after criticism that rates on cards have continued to rise while the Bank of England base rate falls. Card companies have been accused of raising rates by up to 10 per cent, with little warning, for customers who are deemed to be higher-risk. The new measures are intended to “help borrowers manage their debts during the downturn”, the statement said.

Debt charities welcomed the commitment of credit card companies to be more lenient with consumers overwhelmed by debt. Teresa Perchard, of Citizens Advice, the charity, said: “It is a positive step that the industry has agreed to discuss the situation surrounding re-pricing. Consumers do not understand why credit card interest rates continue to climb while the base rate is falling.”

In the past month, credit card companies have been accused of squeezing extra profit from customers at a time when consumers are struggling to make ends meet.

This month Abbey, the Spanish-owned bank, raised rates on some of its cards from 16.9 to 19.9 per cent.

In 2006, the Office of Fair Trading ruled that fees applied by credit card companies should be capped at £12. Industry experts have suggested that companies have since been seeking other ways to boost profits.

This week HBOS, the owner of Halifax, was criticised for increasing its balance transfer fees from 3 per cent to 3.5 per cent on one card.

Pula Houghton, of Which?, the consumers' association, said: “It has never been more important for all lenders to act responsibly in providing credit. This means operating fairly and transparently throughout the lifetime of the relationship. We would welcome any measures that help consumers borrow in a safe and measured manner.”