US bans punitive credit card charges – will the UK be next?
27 August 2010
In one of the most widespread crackdowns on the financial services industry since the Obama administration came to power, sweeping credit card reforms have been announced in the United States.
Under these reforms, huge charges for late credit card payments have been banned, with the US government capping late payment penalties at $25 (£16).
Unexplained interest rate rises were also banned yesterday, along with fees for "under-use" of cards.
The move has led to consumer experts in the UK questioning if we will soon follow America's lead in becoming harsher with credit card providers hitting consumers with punitive charges.
One debt expert, Kevin Still, director of Atlantic Financial Management, said that US was further ahead than the UK in clamping down on credit card issuers.
"Credit card interest rates continue to rise whilst the Bank of England rate remains at a record low," he said.
"Millions of cardholders are making minimum payments or below contractual payments on their credit card debts, resulting in them not really clearing any of the debt balance, whilst Credit Action's August report shows that the average interest rate on credit card lending is currently 18.46%. We see many clients starting a Debt Management Plan (DMP) joining us with store and credit card rates well above 20%."
In the US, credit card providers will now be required to give 45 days' notice for any interest rate rise, and will have to give a reason for any changes. They will also be unable to raise interest rates during the first 12 months of a new account being opened.
However, US analysts have been quick to point out that the move might mean all credit card customers will endure rate rises to compensate for the loss of money-making loopholes.
Speaking with the Guardian newspaper, Moshe Orenbuch, a Credit Suisse banking analyst, said that whereas previously a small number of credit card customers had been unknowingly paying for "all the sins of cardholders", now the industry will be "taking that cost and spreading it over all customers."