New CCD rules to hike credit card rates

15th January 2011  

New rules which finally come into force from February 1st 2011 aimed at giving the consumer a better deal from credit card companies and other financial institutions seem set to raise the credit card rates on many new applications.

The Consumer Credit Directive (CCD) was adopted by the European Council in May 2008, but much of the legislation that derives from it will finally be law from the beginning of next month. Many lenders have started to comply with the new rules early to ease the administrative burden, but many of the less palatable changes and their effects are going to hit the market in the next 2 weeks.

Many of the measures are aimed at improving transparency and making it easier for consumers to compare deals between companies, but perversely the changes will make it more difficult for many people to access these deals or to know the actual deal they personally will be offered.

We’re all used to seeing the phrase “Typical APR” advertised with financial products, and many people now understand that the deal that’s advertised isn’t necessarily the deal they’ll get offered if they apply.

But along with the change to the term “Representative APR” financial institutions will now only have to offer their advertised “Representative APR” to 51% of applicants, with the balance of people being either offered a higher rate, or declined completely. Previously the rules stated that they had to offer their “typical” rate to two thirds of applicants or 66%. The information must also be displayed more prominently of advertising and marketing material.

Industry insiders think that the CCD changes will force credit card companies to try to make their money out of the people who are accepted at higher rates. Many of the eminently credit worthy applicants accepted at the advertised ‘best’ rate clear their credit card bills every month leaving little scope for the card issuers to make money in interest.

Although the underlying way that interest rates are calculated is to remain unchanged, it’s likely that because of these changes the advertised APR rates will rise. This will mean consumer’s existing deals will look more competitive.

Credit card and loan companies will be compelled to tell applicants if their application has been rejected because of information supplied by a credit reference agency, and have to supply contact details of the company that has supplied the information. However, there is still no obligation for people to be told what information specifically has led to their application being turned down.

Another big change is the move to compulsory Positive Payment Order. This means that card holder’s monthly repayments are allocated to the highest interest bearing balances on their card account first.  There are also new rules on the notification of changes to charges like interest rates. Currently your bank or credit card issuer has to notify you of changes 30 days in advance, and this will change to 60 days.

As the full impact of the Government’s public spending cuts hit the nation’s unemployment statistics, banks and credit card issuers are taking an even more tight line with offering people new or more credit. Equifax, one of the three main credit reference agencies, this week revealed that 36% of the consumers it questioned had found it more difficult to get credit in 2010, and the situation could well worsen this year.

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