New rules ‘could increase credit card costs’

The Consumer Credit Directive, set to take effect on the 1st February 2011, is a new set of rules designed to make things clearer for borrowers. However, some experts have noted that it could actually lead to an increase costs and in some cases make things more confusing.

The new rules will oblige lenders to provide prospective borrowers with more detailed information on credit products, including the long-term costs and the consequences of failing to keep up with repayments. Lenders will also have to inform people if their application for credit has been rejected due to information received from a credit reference agency.

There will also be changes to the way APR is advertised. Currently, lenders must advertise the ‘typical’ APR on all their products – defined as the rate that at least 66% of customers are offered. But from February, lenders will have to advertise the ‘representative’ APR – the rate that at least 51% of customers receive. This potentially means that fewer people will have access to the rate advertised.

Lenders will also be made to carry out more detailed credit checks on all credit applicants. But experts have suggested that the increased cost to the lender of carrying out these checks, combined with the additional information they must provide, could ultimately be passed onto consumers in the form of higher interest rates.

A credit cards expert at Think Money (www.thinkmoney.com) said: “Credit card providers have to include their typical APR on their advertising, but many people don’t realise that this isn’t the rate everyone receives. The actual rate offered can depend on a number of factors, including the borrower’s credit rating.

“This is just one reason why searching around for the right deal is important. Equally important is not just accepting the first deal you’re offered – if you’re offered a higher interest rate than anticipated, it might be worth waiting a while and looking elsewhere.”

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