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.
The last few weeks have seen the government enforce new regulations on the credit card lenders and financial institutions in an attempt to take some of the pressure off the public and give them a little bit of wriggle room when it comes to sorting out their finances. Previously the credit card lenders had come under considerable criticism for their heavy handed methods of dealing with those whom found themselves in financial difficulties and defaulted on payments. But with the beginnings of what looks to be a longer term financial winter it is clear that many more people will struggle in the coming months to meet their financial commitments. To this end the government has stepped in and insisted that customers have time to consult independent advisors and have more protection before becoming subject to action from 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.
The government has also brought in a second regulation stating that credit card lenders may not increase the interest rate charges within the first 12 months of an offer being taken up. This has come about as the result of complaints by customers about significant rises in interest rate charges only weeks after taking up an offer. Although legally the credit card lenders are perfectly entitled to raise the rates, the government perhaps considered it unethical to do so in the midst of an economic crisis and particularly as the Bank of Englands base rate is currently at its lowest level in 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.
The last few weeks have seen the government enforce new regulations on the credit card lenders and financial institutions in an attempt to take some of the pressure off the public and give them a little bit of wriggle room when it comes to sorting out their finances. Previously the credit card lenders had come under considerable criticism for their heavy handed methods of dealing with those whom found themselves in financial difficulties and defaulted on payments. But with the beginnings of what looks to be a longer term financial winter it is clear that many more people will struggle in the coming months to meet their financial commitments. To this end the government has stepped in and insisted that customers have time to consult independent advisors and have more protection before becoming subject to action from 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.
The government has also brought in a second regulation stating that credit card lenders may not increase the interest rate charges within the first 12 months of an offer being taken up. This has come about as the result of complaints by customers about significant rises in interest rate charges only weeks after taking up an offer. Although legally the credit card lenders are perfectly entitled to raise the rates, the government perhaps considered it unethical to do so in the midst of an economic crisis and particularly as the Bank of Englands base rate is currently at its lowest level in 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 is a financial writer that concerntrates on informing readers on current events in the credit market . You can find further information on the credit card here.
posted by Debt Consolidation Loan at
4:31 AM
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