Help at hand

Credit card companies agree to help struggling borrowers

Thursday, 27 November 2008

Writes Hazel Cottrell
hazel.cottrell@consumerchoices.co.uk

Credit card providers have said they will give breathing space to customers struggling with debt.

Credit card companies have agreed to do more to help indebted customers, following the Credit Card Industry Summit held with business secretary Lord Mandelson yesterday.

In a joint statement published by the government and the industry, the UK’s biggest credit card companies, including Barclaycard (www.barclaycard.co.uk), Santander, Lloyds TSB (www.lloydstsb.co.uk) and Capital One (www.capitalone.co.uk), agreed to give extra breathing space to struggling borrowers by suspending debt collections for 30 days if a debt advice agency is working with the customer on a repayment plan.

The statement said that the new measures are intended to “help borrowers manage their debts during the downturn” and said that the industry would report back to the government in two weeks to agree a set of fair principles.

Importantly, these principles will cover risk-based pricing, under which interest rates have previously been increased for struggling borrowers that are likely to default.

Frances Walker, head of media at the Consumer Credit Counselling service (www.cccs.co.uk) commented on the outcome: “Most of the reputable credit card companies already give struggling borrowers space if they are working with a debt advice agency. In fact, many refer their customers to us directly. However, if we can get a commitment across the board, persuading less reputable companies to take that stand too, that would be ideal.”

Following this crackdown on credit cards, it looks like the governments next target will be bank loans. The government has been putting pressure on banks to increase lending and to pass on cuts in interest rates to help support the economy, but there is growing concern that this is not enough.

Chancellor Alistair Darling and Lord Mandelson have now asked for figures from the banks to back up their claims that lending to small business sector has risen in recent months.

The action that the government takes will depend on what the data shows, but yesterday Darling told parliament: “The government is ready and willing and it will hold banks to account, we are ready to take further action to make sure that bank lending resumes.”

Chris Eagle, commercial manager at CreditChoices.co.uk said: “In the current economic climate, we do need the government to take this action. More and more people are struggling with debts and the aggressive tactics used by some credit companies can only be making things worse.

“If you are struggling with debt, visit our debt centre for helpful advice and links to useful organisations.”

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