The Financial Services Specialists

Following last year's announcement of the Government's commitment to regulate credit and store cards (mentioned here on this site), the planned legislation, unveiled in March, is due to come into effect in January 2011.

The changes include a ban on imposing rate increases or re-pricing existing debt - allowing consumers thirty days in which to reject such changes. Payment allocation has been revised, meaning the most expensive debt is paid off first, and issuers must also clearly outline the consequences of making only the minimum repayment for an extended period of time.

The legislation is less radical than originally planned. A report commissioned by the UK Cards Association, entitled Credit and Store Card Review: Response to A Better, Deal for Consumers, is partly accountable for the modification of original proposals. It outlined a variety of unforeseen negative effects when access to credit is severely restricted, arguing that credit cards in particular are a useful tool, and used appropriately by a majority of borrowers. Subsequently, credit card cheques were not banned outright (they must be requested), and the minimum repayment amount was not raised.

Bluerock believes that the legislation will prompt rapid change in the industry. At an estimated cost to issuers of £533m in the first two years , it heralds a new, more challenging era in which companies must work more efficiently to offset the loss to traditional income streams. Cards profitability has dramatically shifted over the last few years, already having had to absorb the impact of the restrictions in PPI and lower interchange rates. The UK's tolerability of debt is much reduced, at least in the short term; with credit card spend having dropped whilst use of debit cards continues to rise.

These changes will have significant impact on product propositions, new card acquisitions, technology and operations with card issuers continually evaluating their cost base, gaining deeper insight to their customers and ensuring their organisation is dynamic and responsive to future change.

Sources

UK Cards Association

A Better Deal for Consumers: Review of the regulation of credit and store cards. Government response to consultation