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Do better by your consumers: Consumer white paper proposes major reform to help consumers with bad credit
A consumer white paper has been launched by the Business Secretary Lord Mandelson, in what is hoped to be a move that will stop credit card companies from luring borrowers into debt with unsolicited actions.
The Government believes that credit card companies are worsening financial situations for consumers with bad credit everywhere because some are increasing borrowing limits and sending out credit cheques which can mean that consumers spiral further into debt.
Credit card cheques are currently a very sore issue with the Government, who believe that credit companies are using them to gain profitable leverage on the consumer. Credit card cheques can add to a borrower’s balance but have higher interest repayments when compared to simply using a card.
Further, interest free periods are not found on such cheques and research has found that the majority of consumers who use the cheques are not aware of the elevated cost.
The white paper is proposing reform by requesting that such cheques are only enabled on consumer demand. It was originally thought that a ban was to be proposed.
Alarmingly, evidence shows that some credit card companies are not helping consumers with bad credit to consolidate their debt at all. Comparison site USwitch.com revealed a study that up to 35% of consumers had their credit increased without a request being sent to their credit card provider. The shock statistics continue further with the revelation that nine out of ten of these consumers had their credit increased by over £1,500.
There are a variety of things that are currently being proposed in this white paper. The focal point is understood to be that credit card companies are being urged to look a lot closer at their customers to see what their credit rating is – something that the Government believe is not being done enough at the moment.
The Government believes that credit card companies are not helping consumers to manage their debt well, which means more profit for the companies in question. If new legislation was to pass, credit card companies would be obliged to help consumers clear their most expensive debts first with monthly repayments.
Even though all of this legislation seems like a beacon of hope for consumers, it is unfortunately but a proposal as of now. However, as the recession continues to sting Britain, the Government certainly believes that this white paper will be gaining momentum in the coming months.