Time for consumers to vote with their feet

Posted in 'Credit Score' by Richard Catlin

28 August 2009

Miss just a single monthly repayment on an American Express (Amex) card and the interest rate soars by 4% following a change to Amex's terms and conditions.

The move has been heavily criticised as it flies in the face of Government pleadings to the credit industry to be more sympathetic when dealing with consumers experiencing financial stress.

It 's not clear how many cardholders have already been affected by the move, but despite official claims that the UK is now officially on its way out of recession, most consumers' personal finances remain tight, with little room for big increases in interest rates on existing debts.

AmEx says that it will only resort to interest rate increases as a very last resort, only after having made every effort to help its customers meet their minimum payments on time.

Measures introduced within the credit industry in the last 18 months include a revised Pre-Action Mortgage Protocol which gives more time for distressed homeowners to come to an arrangement to pay, a new code of practice for the way that lenders can pursue debts, and a revised Banking Code.

In particular, the revision to the Banking Code was introduced in April 2008 - before the real onset of the economic crisis - but was clear in outlining that credit card providers must be more sympathetic in helping consumers in financial difficulty.

Late last year, Business Secretary Peter Mandelson warned lenders that they will face an Office of Fair Trading investigation unless they took steps to reduce the interest rates they charge on credit cards. As we reported at the time, we believe that the underlying claim of high interest rates being charged to consumers is based on a poor understanding of the mechanics of how card companies actually make their money, but this latest move by AmEx is sure to cause further indignation in the Cabinet.

Increasing levels of bad debt in the USA have led to AmEx offering money to consumers who are willing to settle and close their account, in order to reduce their immediate risk exposure.

Although most UK card lenders have tightened up their acceptance criteria, it doesn't mean that alternative cards are hard to get. By using your credit score to determine which card you should apply for, you stand a much greater chance of being accepted first time, and chances are you will also find a cheaper card, and save yourself a tidy sum at the same time.

Check your credit score and rating for free.