Forum Brief: Credit cards
Banks and credit card issuers face a clampdown on the widespread practice of mailing credit card cheques to card customers who have not requested them.
They will face greater restrictions on sending out credit card cheques to people aged 25 and under.
Forum Response: Consumers' Association
A spokesman for the Consumers' Association said: "Consumers' Association is disappointed that the government did not heed the damning evidence Treasury select committee gave in their report on credit cards, or indeed follow up on the previous consumer minister Melanie Johnson's call for 'credit card cheques not to be sent out unsolicited'.
"While we acknowledge that the proposed moves to improve screening of 'ability to repay' would go some way to address the problem, we feel the best solution is to ban the practice of issuing them unless requested. Even when requested, credit card cheques should be accompanied by a clear non-jargoned health warning about charges, lack of interest free-period and loss of Section 75 protection.
"The government has missed another opportunity to send a strong message to the credit industry to clear up its act and behave in the interests of consumers.
"We are also concerned that several key obstacles to creating a transparent credit market have not yet been addressed in the new consumer credit legislation or via the Banking Code to date, including:
- consumers not being able to find the cheapest credit card by looking at the APRs, since the card companies' nine different ways of applying interest mean that there can still be up to a 76 per cent difference in the amount charged by two cards with exactly the same APR on exactly the same borrowing.
- companies not having to state the APR in all advertising for credit products, when the cost of borrowing is the most important thing to consider when taking out any credit product.
- companies not having to share full information on their customers' borrowing and repayment levels with credit reference agencies. It's impossible for credit companies to truly lend responsibly if they don't know the extent of the applicant's credit commitments and record of repayment.
"We believe these issues need to be addressed to create a credit market which is genuinely transparent, allowing consumers to make informed choices."
Forum Response: Association for Payment and Clearing Services
A spokesman for APACS said: "Card issuers recognise the importance of ensuring that customers have clear and concise information on their products and services. Credit card cheques are no exception.
"APACS has developed a set of best practice guidelines for credit card cheque issuers. APACS have recommended that these guidelines be included in the revised version of the Banking Code in 2005.
"The guidelines set out an active approach to ensure responsible lending, which includes the following:
"Before credit card cheques are sent out to a customer the issuer will always assess the customer’s ability to repay.
"Issuers will provide new customers with a first time opt-out of receiving credit card cheque mailings.
"Existing customers will be able to opt-out of receiving credit card cheques by contacting their issuer.
"Issuers will undertake appropriate checks to assess a customer’s suitability before sending credit card cheques.
"Information recommendations are as follows: Information will explain how credit card cheque transactions will be treated eg. if they are treated as cash advances and the relevant terms and conditions that will apply.
"Customers will be told what steps to take if they do not wish to use their credit card cheques. Issuers will not offer customers specific inducements, such as prize draws, to use credit card cheques.
"Regarding the article in the Financial Times on 30/06/04, we are concerned that it might be difficult to justify a universal ban on the issuance of cheques to specific sets of customers considered ‘vulnerable’ eg. those under the age of 25.
"The credit card cheque guidelines described above are designed to ensure that credit card cheques are not sent to inappropriate recipients, and reflect the fact that issuers are well positioned to identify which of their customers ought not to be sent credit card cheques."
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