Government Pushes for Increase in Monthly Repayments

Credit card companies are being hit by new proposals from the Government which require that they assist consumers in lessening their debt rather than inciting them to add to it.

Ministers have spent the summer in review of credit and store card practices following the release of the consumer white paper "A Better Deal for Consumers" in July.

Following the announcement of the proposals there will be a three-month public consultation period before the new laws come are created.

Included in these proposals will be the requirement that credit card companies to increase - by up to 50% - the minimum amount that cardholders repay each month.

Average monthly payments have decreased from around 5% of the outstanding balance to roughly 2-3% of the remaining debt in recent years.

This can leave consumers who stick to the minimum repayments over a long time with four times the original credit card debt and some cardholders are now taking longer to pay off their credit card than they do their mortgage.

Gordon Brown said that the purpose of the proposals is to make "credit and store card companies clean up their act and give people a fairer deal. Sharp practices by lenders - such as hiking interest rates on existing debts without explanation and raising credit card limits without being asked - these sharp practices should end."

The practice of adverse order of payments is also expected to be targeted under the proposals.

Companies will be banned from using people's monthly payments to pay off the cheaper debt left on the credit card, while charges incurred for higher interest debts are left untouched.

Credit card debt has dropped by £2bn in the past year to £64bn, but the Government insists that more should be done to protect consumers from interest charges which often approach 20%.

Kevin Brennan, the Consumer Minister, said: "When many people were struggling to pay their bills every month it was astonishing that credit card companies were continuing with practices which work against the interests of consumers.

The Government is also considering banning credit card companies from increasing a customer's borrowing limit without consulting them first.

Credit card holders could also be presented with an annual statement showing how much interest they have been charged over the year.