Starting 2011, major changes to credit cards process will come into effect. The new regulations are the result of Labour initiated investigation that started in 2009 to look into the fairness in the ways by which credit card companies treat their customers. Borrowers, estimated by millions, will gain a substantial advantage from such changes. However, experts warned borrowers to be vigilant, as some greedy lenders may resort to introducing higher rates and new fees to circumnavigate the impact of the new regulations.
The changes will see the introduction of a legal minimum monthly payment on credit card debt for the first time. According to the new regulations the minimum payments will cover interest, fees, and at least one percent of the outstanding capital. It aims to enable borrowers to clear their debts.
The most significant change, however, will affect the process by which credit card companies use the payments against the outstanding debt. On the same card, borrowers can have two different interest rates on different sums – i.e. some a zero % on balance transfer for a promotional period and a regular rate on purchases.
In the past credit card companies used the payments to clear the lowest interest debt first. This, of course guarantees them maximum profitability as the highest interest rate is sustained for a longer duration – a process commonly known as ‘negative order of payments’. Under the new regulations, lenders are obliged to use the payments to clear the highest rate debt first.
Some lenders, such as Nationwide Building society, have always used ‘positive order of payments’. Virgin, MBNA, Barclaycard, and Halifax all have switched earlier this year. Other, such as RBS/ NatWest, will switch starting from the beginning of the New Year, followed by Lloyds TSB switching from the middle of January. Others, however, are reluctant to implement the policies, blaming the technology for the delay.
Cardholders will also be able to refuse rises in their rate and will now be getting 60 days notice period as opposed to 30 days.