The British government is looking to crack down on the problems of unsolicited increases in credit card limits that allow people to take on unaffordable debt.
Companies will be outlawed from sending out unsolicited credit-card cheques, or raising the credit limit of a customer when this has not been requested.
Credit-card cheques are issued as an alternative way of drawing on a card account where the card itself it not accepted, by a tradesman for example. However, they have fees as high as 3 per cent and often charge interest rates in excess of 20 per cent. They also leave users without ''Section 75'' consumer protection that allows them to claim refunds from the credit-card company if they receive faulty or undelivered goods costing between £100 and £30,000.
The Business, Enterprise and Regulatory Reform (BERR) department wants to put an end to "irresponsible lending" by restricting credit card firms from tempting consumers into further debt. A BERR spokesperson said, "We are concerned that people may be tempted to borrow irresponsibly if credit card companies increase borrowing limits without this being requested by consumers, or send out unsolicited credit card cheques. It is vital we protect consumers at this time and we are exploring these issues carefully.''
But a spokesman for the UK payments association Apacs said that its members did not raise the credit limits of borrowers with financial problems. He added that only 7 per cent of the cheques sent out were actually used. "We are not convinced that the proposed legislation is the best way forward and we are disappointed that the government is talking about taking action before appropriate consultation and fully understanding the issues," he said.
In 2006, the credit-card industry came under pressure from the Office of Fair Trading to rein in the practice of mass-mailing blank credit-card cheques to customers. As a result, credit-card companies agreed to assess customer risk-profiles before sending them the cheques, and to provide clearer information on the costs involved in using them.