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Consumer credit card 'fair deal' rules will only help new customers

Only new customers will benefit from new credit card rules designed to protect the public.

New rules to make credit card borrowing fairer are on the way. But some rules will be limited to new customers only.

The most expensive credit card debts will be cleared first, but only for new customers, following a deal between the credit card companies and the government.

At the moment many credit card companies will use customers’ payments to clear low interest debts such as low interest balance transfers or purchases first and higher rate cash withdrawals last.

For example on the Barclaycard Gold the rate on purchases is 19.9%, but for cash withdrawals the rate is 27.9%. When customers make a monthly payment it would be assigned to debt incurred on purchases.

Credit card companies have been criticised for using this method known as negative payment hierarchy as it makes debts more expensive to pay off..

However, the new rules only help new customers, so existing credit card customers will have to switch to a new provider to benefit.

The new rights for customers also mean those making minimum payments will be informed that they are taking a costly option.

Other changes include a 60-day notification of interest rate hikes, in which time customers have the right to pay off the debt or organise a balance transfer.

Over 10 million credit card customers had their credit card interest rate change last year; 60% of them were hit with rate hikes.

Companies have also pledged to stop increasing the credit limits of customers in difficulty, and provide customers with a 30-day warning of a credit limit increase.

New customers will see minimum payments covering interest, fees and 1% of the debt at least.

The credit card firms claim the changes will cost £533 million over the first two years.

Chris Eagle, commercial manager at Creditchoices.co.uk, said: “These changes may sound good, but really they seem very limited.

“The one major change is the shifting of the payment hierarchy, but this is only for new customers. Otherwise the new rights seem particularly cosmetic.”

He added: “Customers need to take control of their credit cards. Make sure you don’t stay on minimum repayments and look round for a better deal on a lower rate. But the best tactic is to just clear your balance each month.”