Limit to interest rates on credit cards

The new coalition government is looking to limit the interest rates that companies charge customers on bank and store cards. It will give new power to regulators to identify excessive interest rates and ban them where necessary.

Although the Bank of England base rate remains at a record low of 0.5 per cent, borrowing has steadily risen over the last couple of years, with the average credit card rate increasing from 15.26 per cent to 16.53 per cent. This move could signal an end to a number of cards on the market, especially those aimed at people with poor credit ratings that charge more than 30 per cent interest.

This follows a ruling by the Competition Commission in 2007 that said that the APR on store cards was too high, and comes as part of the government’s new measures to protect consumers from receiving a raw deal from financial services companies. It also intends to end unfair charges on bank accounts and other financial transactions.

In addition, people who take out a store card will have a seven-day cooling off period, and there will be new obligations for credit card companies about the information they present to customers.

As part of the coalition agreement, the government said that it believes that action is needed to protect consumers, particularly the most vulnerable, and to promote greater competition across the economy.