Lukewarm response to credit card debt help

20/01/2010

Consumer credit card debt could be reduced as the government and the UK credit card industry representative have announced plans to help vulnerable consumers.

Several proposals were put forward by the UK Cards Association, including as industry-wide change concerning "allocation of payments practices" which would insure that all payments above the minimum would be allocated to the most expensive debt first.

The government had already suggested a similar plan, but wanted to apply restrictions in repayments to all customers, not just those above the minimum repayments.

A suggestion was also put forward to contact customers who are repeatedly making minimum repayments in order to remind them that they are paying off their debt in the most expensive way.

Melanie Johnson, chair of the UK Cards Association, said: "The credit card industry is keen to give consumers as much control of their finances as possible."

She added: "Our approach will deliver big improvements to customers without smothering competition and choice, which customers value and gain significant benefit from. It will also maintain features which are vital to lenders being able to lend responsibly."

Despite an estimated 30.2 million credit cardholders in the UK, the UK Cards Association found that credit card debt reached a five-year low in 2008 and is still decreasing.

Director of EuroDebt Kevin Still, commented: "I am not sure how their counter proposal help vulnerable clients, who are the ones making the minimum payments, as they have indicated that it is the lender that has the discretion to allocate the minimum payment amount as they wish, probably to the detriment of the client needing the most debt help.

He added: "A Debt Management Plan may be of real assistance to someone who can no longer manage their repayments where the majority of the minimum payment is interest."

Tags; Income Worries and Debt,

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