Credit card legislation " tightening up on lending criteria?
The recent economic downturn has taken everyone by surprise and its rapid descent into a full-blown recession has made financial institutions take a serious look at how they do business. In contrast to other recessions the general public have been hit much harder and much earlier than before. This is due to one simple factor " the current recession is the direct result of a flood of easy credit during the eighties and nineties. Now those financial chickens have come home to roost.
Extreme situations often call for extreme measures, and the last few weeks have seen a number of significant changes to the regulatory framework that governs the credit card industry. Before the credit crunch kicked in the credit card lenders generated a fair amount of criticism concerning the way they dealt with customers who got into financial difficulties and had problems meeting regular monthly payments. The industry had been accused in the past of being heavy handed in its approach towards customers who default on payments, but with the advent of a serious financial crisis it has become obvious that more people will find it increasingly difficult to stay on top of credit card debt. The government has stepped in surprisingly quickly in this instance, and has insisted that customers in trouble have more protection and the time to take professional advice before being subject to stricter measures by the lenders.
Under the new regulations all cardholders will be given a 30-day breathing space to give them the opportunity to take advice from the Citizens Advice Bureau. Here they will be able to receive free, impartial guidance as to how they can deal with credit card debt and come up with a workable plan to help them meet their financial commitments. If they cannot sort their financial situation out or come up with a deal that the credit card lender agrees to within that timeframe, then there is a further 30 day buffer period during which no payment demands can be issued by the credit card lender. This gives struggling customers two months to come up with a realistic financial plan without the worry of constant demands for payment from the lender. If, however, no progress has been made during this second 30-day period then the picture becomes bleaker.
Another important change to the regulations that the government has insisted upon is that credit card lenders will not be able to change their interest rates during the first 12 months of a customer's time with the company. This has been instigated as a direct result of complaints from customers about significant increases in interest rates only weeks or months after a promotional offer has been taken up. Although increasing the interest rate is not an illegal move, the government perhaps considered it somewhat unethical, particularly in a time of economic hardship and at a period when the base rate of interest is at its lowest in the Bank of Englands history.
These measures are designed to keep the wheels of the financial industry turning and are not altruistic on the governments part. With the threat of interest rate capping hanging over them as well, it is clear that the credit card lenders are becoming nervous about potential bad debt and these regulations may mean that the criteria for credit card applications become stricter. The credit card holder still carries full responsibility for managing their money and to meet payment terms and has to go into any financial agreement with their eyes wide open. Hard times do happen, and those who thought that the good times would continue indefinitely (both customers and lenders) have been proven wrong. A period of adjustment and a reconsideration as to how credit should be handled are now the order of the day. The measures will go some way to taking some of the pressure off those who find themselves struggling to meet repayments, but it may mean that credit in general becomes harder to obtain as the lenders try to defend their market positions.
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.
Extreme situations often call for extreme measures, and the last few weeks have seen a number of significant changes to the regulatory framework that governs the credit card industry. Before the credit crunch kicked in the credit card lenders generated a fair amount of criticism concerning the way they dealt with customers who got into financial difficulties and had problems meeting regular monthly payments. The industry had been accused in the past of being heavy handed in its approach towards customers who default on payments, but with the advent of a serious financial crisis it has become obvious that more people will find it increasingly difficult to stay on top of credit card debt. The government has stepped in surprisingly quickly in this instance, and has insisted that customers in trouble have more protection and the time to take professional advice before being subject to stricter measures by the lenders.
Under the new regulations all cardholders will be given a 30-day breathing space to give them the opportunity to take advice from the Citizens Advice Bureau. Here they will be able to receive free, impartial guidance as to how they can deal with credit card debt and come up with a workable plan to help them meet their financial commitments. If they cannot sort their financial situation out or come up with a deal that the credit card lender agrees to within that timeframe, then there is a further 30 day buffer period during which no payment demands can be issued by the credit card lender. This gives struggling customers two months to come up with a realistic financial plan without the worry of constant demands for payment from the lender. If, however, no progress has been made during this second 30-day period then the picture becomes bleaker.
Another important change to the regulations that the government has insisted upon is that credit card lenders will not be able to change their interest rates during the first 12 months of a customer's time with the company. This has been instigated as a direct result of complaints from customers about significant increases in interest rates only weeks or months after a promotional offer has been taken up. Although increasing the interest rate is not an illegal move, the government perhaps considered it somewhat unethical, particularly in a time of economic hardship and at a period when the base rate of interest is at its lowest in the Bank of Englands history.
These measures are designed to keep the wheels of the financial industry turning and are not altruistic on the governments part. With the threat of interest rate capping hanging over them as well, it is clear that the credit card lenders are becoming nervous about potential bad debt and these regulations may mean that the criteria for credit card applications become stricter. The credit card holder still carries full responsibility for managing their money and to meet payment terms and has to go into any financial agreement with their eyes wide open. Hard times do happen, and those who thought that the good times would continue indefinitely (both customers and lenders) have been proven wrong. A period of adjustment and a reconsideration as to how credit should be handled are now the order of the day. The measures will go some way to taking some of the pressure off those who find themselves struggling to meet repayments, but it may mean that credit in general becomes harder to obtain as the lenders try to defend their market positions.
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
4:10 AM
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