The global economy has been plunged into an unprecedented crisis that has taken everyone by surprise by its rapidity and impact on both macro and micro levels. The financial downturn has made everyone take a look at how they do business - particularly the financial markets - as it has become clear that this particular recession has been led by an over-indulgence of easy credit over the past 20 years. The good times have rolled to a sudden and dramatic stop.
The last few weeks have seen the government enforce new regulations on the credit card lenders and financial institutions in an attempt to take some of the pressure off the public and give them a little bit of wriggle room when it comes to sorting out their finances. Previously the credit card lenders had come under considerable criticism for their heavy handed methods of dealing with those whom found themselves in financial difficulties and defaulted on payments. But with the beginnings of what looks to be a longer term financial winter it is clear that many more people will struggle in the coming months to meet their financial commitments. To this end the government has stepped in and insisted that customers have time to consult independent advisors and have more protection before becoming subject to action from lenders.
Under the new regulations all cardholders will be given a 30-day breathing space to give them the opportunity to take advice from the Citizens Advice Bureau. Here they will be able to receive free, impartial guidance as to how they can deal with credit card debt and come up with a workable plan to help them meet their financial commitments. If they cannot sort their financial situation out or come up with a deal that the credit card lender agrees to within that timeframe, then there is a further 30 day buffer period during which no payment demands can be issued by the credit card lender. This gives struggling customers two months to come up with a realistic financial plan without the worry of constant demands for payment from the lender. If, however, no progress has been made during this second 30-day period then the picture becomes bleaker.
The government has also brought in a second regulation stating that credit card lenders may not increase the interest rate charges within the first 12 months of an offer being taken up. This has come about as the result of complaints by customers about significant rises in interest rate charges only weeks after taking up an offer. Although legally the credit card lenders are perfectly entitled to raise the rates, the government perhaps considered it unethical to do so in the midst of an economic crisis and particularly as the Bank of Englands base rate is currently at its lowest level in history.
These measures are designed with the sole purpose of keeping the money markets buoyant " make no mistake in thinking that this is a purely altruistic move by the government. The credit card holder still carries full responsibility for any credit card debt and the onus is on them to manage their financial affairs in such a way as to ensure that the credit card lender is not exposed to further risk of bad debt. Although in hindsight the credit card companies have come under mounting criticism for their lending policy when times were good, it should be remembered that it is always the customers choice to take up a credit card offer. The changes in legislation take into account the extraordinary circumstances of the current economic crisis and will certainly go some way to alleviate the pressure that those struggling with credit card debt are under.
How quickly these regulations have a direct effect on the credit card industry remains to be seen, although if the previous indicators are anything to go by they will be implemented very quickly. Credit card lenders will be looking to prevent future bad debt from becoming an issue and subsequently will be looking at credit history, financial stability and future prospects of their customers much more closely before granting credit. The credit card industry is going through a transitional period which, if handled properly, will mean a much more stable and sustainable market in the years to come. It also means that those who do find themselves in trouble have an opportunity to deal with the situation before it becomes a major problem. - 15224
The last few weeks have seen the government enforce new regulations on the credit card lenders and financial institutions in an attempt to take some of the pressure off the public and give them a little bit of wriggle room when it comes to sorting out their finances. Previously the credit card lenders had come under considerable criticism for their heavy handed methods of dealing with those whom found themselves in financial difficulties and defaulted on payments. But with the beginnings of what looks to be a longer term financial winter it is clear that many more people will struggle in the coming months to meet their financial commitments. To this end the government has stepped in and insisted that customers have time to consult independent advisors and have more protection before becoming subject to action from lenders.
Under the new regulations all cardholders will be given a 30-day breathing space to give them the opportunity to take advice from the Citizens Advice Bureau. Here they will be able to receive free, impartial guidance as to how they can deal with credit card debt and come up with a workable plan to help them meet their financial commitments. If they cannot sort their financial situation out or come up with a deal that the credit card lender agrees to within that timeframe, then there is a further 30 day buffer period during which no payment demands can be issued by the credit card lender. This gives struggling customers two months to come up with a realistic financial plan without the worry of constant demands for payment from the lender. If, however, no progress has been made during this second 30-day period then the picture becomes bleaker.
The government has also brought in a second regulation stating that credit card lenders may not increase the interest rate charges within the first 12 months of an offer being taken up. This has come about as the result of complaints by customers about significant rises in interest rate charges only weeks after taking up an offer. Although legally the credit card lenders are perfectly entitled to raise the rates, the government perhaps considered it unethical to do so in the midst of an economic crisis and particularly as the Bank of Englands base rate is currently at its lowest level in history.
These measures are designed with the sole purpose of keeping the money markets buoyant " make no mistake in thinking that this is a purely altruistic move by the government. The credit card holder still carries full responsibility for any credit card debt and the onus is on them to manage their financial affairs in such a way as to ensure that the credit card lender is not exposed to further risk of bad debt. Although in hindsight the credit card companies have come under mounting criticism for their lending policy when times were good, it should be remembered that it is always the customers choice to take up a credit card offer. The changes in legislation take into account the extraordinary circumstances of the current economic crisis and will certainly go some way to alleviate the pressure that those struggling with credit card debt are under.
How quickly these regulations have a direct effect on the credit card industry remains to be seen, although if the previous indicators are anything to go by they will be implemented very quickly. Credit card lenders will be looking to prevent future bad debt from becoming an issue and subsequently will be looking at credit history, financial stability and future prospects of their customers much more closely before granting credit. The credit card industry is going through a transitional period which, if handled properly, will mean a much more stable and sustainable market in the years to come. It also means that those who do find themselves in trouble have an opportunity to deal with the situation before it becomes a major problem. - 15224
About the Author:
Tim Jones writes for various financial based websites and likes to report on changes and events in the credit card market. You can find further information on the credit card here.
