FeelingWow! Magazine

The recent economic downturn has taken everyone by surprise and its rapid descent into a full-blown recession has made financial institutions take a serious look at how they do business. In contrast to other recessions the general public have been hit much harder and much earlier than before. This is due to one simple factor ” the current recession is the direct result of a flood of easy credit during the eighties and nineties. Now those financial chickens have come home to roost.

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 credit card customers who have difficulties will be given a 30-day breathing space to take an opportunity to discuss their situation with the Citizens Advice Bureau. Here they will be able to receive free, impartial advice and guidance as to how they can negotiate an agreement with their creditors and arrange suitable repayment terms that take into account their financial situation. If an agreement cannot be reached within this period, there is a further 30-day buffer period during which the credit card lender cannot make payment demands until the situation is solved. However, if no agreement has been reached by the end of this second timeframe then the picture can become much bleaker and the lender has the right to pursue payment fully.

Another important regulation introduced by the government is an insistence that credit card companies do not change interest rate charges during the first 12 months of an offer being taken up. This regulation has come about as the direct result of complaints by customers who have been subject to significant raises in interest rates only weeks after taking up a promotional offer. Although increasing the interest rate is perfectly acceptable in law, the government may have seen it as somewhat unethical on the part of the lenders, particularly during a time of economic hardship and also at the point where the Bank of Englands base interest rate is at its lowest in its history. This is why they have insisted that interest rates remain stable for at least the first year of the offer.

These measures are designed to keep the wheels of the financial industry turning and are not altruistic on the governments part. With the threat of interest rate capping hanging over them as well, it is clear that the credit card lenders are becoming nervous about potential bad debt and these regulations may mean that the criteria for credit card applications become stricter. The credit card holder still carries full responsibility for managing their money and to meet payment terms and has to go into any financial agreement with their eyes wide open. Hard times do happen, and those who thought that the good times would continue indefinitely (both customers and lenders) have been proven wrong. A period of adjustment and a reconsideration as to how credit should be handled are now the order of the day. The measures will go some way to taking some of the pressure off those who find themselves struggling to meet repayments, but it may mean that credit in general becomes harder to obtain as the lenders try to defend their market positions.

It remains to be seen how much impact the new legislation will have on credit card lending and if lenders will need to re-evaluate their position with regard to pursuing those in financial difficulty. But the breathing space the two 30 day periods give customers, combined with a guarantee that interest rates are fixed for at least 12 months should go some way to helping those who do get into difficulties.