Interest rates to be squeezed

Crunch time for credit card rates

Wednesday, 26 November 2008

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

‘Lower your interest rates and stop using aggressive tactics on struggling borrowers,’ Peter Mandelson will tell credit card chiefs today.

Credit card companies will be told to reduce sky-high interest rates and charges at a Whitehall summit today, attended by government ministers including business secretary Peter Mandelson.

Ministers will today demand that credit card companies:

• Reduce their interest rates
• Establish clear and fair principles to charges applied on existing debt
• Support households which get into unforeseen difficulty
• Ensure that new responsible lending is entered into.

Consumer affairs minister Gareth Thomas, who is chairing the meeting, said: “We want to work constructively with industry to draw up a set of principles that will enable them to keep lending and will also ensure borrowers are treated fairly and in a way that best helps them pay off their debts.”

Prime minister Gordon Brown announced plans to hold the summit after seeing evidence of card providers significantly hiking up interest rates, despite the fact that the Bank of England base rate has been slashed from 5% to just 3% over the last two months.

The average interest rate charged on credit cards in circulation has increased to 17.6%, from 16.8% a year ago, according to research conducted by Defaqto for The Independent (www.independent.co.uk).

If the summit is not successful, ministers might ask the Office of Fair Trading to take action against individual companies.

Chris Eagle, commercial manager at CreditChoices.co.uk said: “In the past year, many credit card companies have hiked up their interest rates and increased their charges, actions which will be having a significant effect on struggling borrowers.

“It’s good to see that the government is taking these companies to task. It’s essential that these lending practices are challenged and it will be interesting to see just how much this summit achieves.”

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