Government to consider capping rates on credit cards

Government to consider capping rates on credit cards

A review of consumer borrowing has prompted talk of a cap on excessive interest rates charged on credit and store cards.

The government has called on experts to share their views on how consumer credit, such as credit cards and store cards, could be be made fairer.

This includes talks over whether the regulator will be able to put a limit on interest rates charged to people that may have difficulties making repayments.

The review which will inform government proposals on industry changes to be published in 2012 - also covers bank charges and personal insolvencies.

The Treasury and Department for Business are keen to find out how consumers can manage their borrowing more affectively, while improving the help made available for those who get into trouble with debt.

The areas covered include:

Dealing with unfair bank charges

A cooling off period of seven days designed to allow consumers to return store cards without being charged

New powers for the regulator to cap interest rates on both credit cards and store cards

Electronic statements offred by credit card providers to help customers decide whether or not they would benefit from switching credit cards to a better deal

Consumer Minister Ed Davey said: "I want to encourage both [customers and lenders] to take responsible decisions and to strengthen protection where necessary - particularly for the most vulnerable".

"If things go wrong people face a confusing array of debt remedies, so I also want to examine how the existing insolvency regime can be made to work better."

Banks have written off around 10% of all money spent on credit cards in recent years, as a result of people been unable to repay their debts.

This has caused credit card costs to rise, even though the Bank rate has remained at a record low for some time now.

In June, the Office of Fair Trading stepped back from recommending that interest rates on short-term borrowing such as pawnbroking, payday loans and home credit be capped, arguing that imposing formal price controls would be both complex and possibly even against the interests of potential borrowers.

These loans filled a gap in the market serving people that could not borrow elsewhere, it said.

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