Is the party finally over for credit card industry?

March 18th, 2009 by admin | Filed under Daily News, Recession, UK Credit cards.

At one time, before the credit crunch implosion was ever thought of, credit cards seemed liked a really good idea. And the truth is, it still is. If placed in the proper hands.

However, in the days of easy credit, things got very out of hand. Credit card companies, on the constant look out for more paper profit, began to offer unreasonable levels of credit to the UK public, too many of whom took up the temptation to live now and pay later, without taking into account the long term implications. And the implications for too many people, especially young families starting out in life, is that they will be facing a future filled with uncertainty and debt.

However this situation appears to be drawing to a close thanks to proposed UK government legislation that will see an end to credit card company’ practices of raising a customer’s spending limits on their credit card without them requesting it. Another recent marketing tool that the credit card companies have adopted recently is to send cheques by post to their customers, These cheques, always unsolicited, present tremendous temptation to people who are struggling to make ends meet to “borrow their way out of trouble” Instead, they are only placing themselves in deeper financial trouble in the long term.

APACS, the UK trade association that provides a forum for financial institutions to discuss issues relating to the payments industry hastened to announce that its members did not raise the credit limits of borrowers with known financial problems. Currently it is estimated that credit card debt in the UK stands at a staggering £53 billion.

Consumer Affairs Minister Gareth Thomas has expressed his concerns, both on the amount of credit card debt in the UK. With the average adult carrying a debt of close to £2,000 in addition to their other financial commitments.

” We are concerned that people may be tempted to borrow irresponsibly if credit card companies increase borrowing limits without this being requested by customers, or send out unsolicited credit card cheques,” said the Minister “It’s vital we protect consumers at this time and we are exploring these issues carefully,” he continued.

A new code of practice for the credit card industry, instituted back in the 2006, imposed on credit companies to carefully assess a customer’s suitability before sending out cheques or raising limits without solicitation on behalf of the customer. They were also requested to explain clearly the implications and costs of taking up these offers. However, in practice, most people see these offers as a lifeline and find it difficult, if not impossible, to refuse.