Finally, irresponsible lenders come under attack!

Neil Faulkner exposes three terrible tactics credit card lenders play - and how we are finally fighting back!

A Government department, the Department for Business Enterprise & Regulatory Reform (BERR), seems to have become aggressive on lenders recently. Here are its three main ideas:

Credit-card cheques

We've shown how hideously expensive credit-card cheques are before, but here's a quick summary:

• They typically charge a massive interest rate, perhaps 23% to 28%.
• The interest is charged immediately, meaning you don't benefit from 45 to 59 days interest-free like you normally do with your credit card.
• You're charged a 2% to 3% fee on top.
• You're left with this expensive debt on your card until you've paid off all your cheaper debts, such as 0% deals. (Read more about that in Beware of this dirty credit card trick!)
• Making purchases with credit cards gives you great protection in law in case things go wrong. Your protection is not so great with these cheques, because Section 75 of the Consumer Credit Act (1974) doesn't apply.

Two years ago the BERR had got lenders to make these charges and fees clearer by adding them to the summary box you see when you apply for a card. Now it wants to ban lenders from sending these cheques unsolicited in the post. Great news if it happens!

Clearer warnings about the threat to your home

I always try to make it clear in my articles that with so-called 'unsecured debts' (i.e. debts that are not supposedly secured against your home), your home is still at risk. If you miss payments on your credit card or unsecured loan, it's possible for a lender to get a court order that ensures they get some of the proceeds when you eventually sell your home. What's more, they can sometimes get a second order on top of that to force a sale of your home.

Credit cards and unsecured loans usually work out cheaper than secured loans, if you use them correctly, but the fact that they're called 'unsecured' isn't such a big selling point, in my opinion.

What's the BERR thinking of doing about it? It might force card companies to warn customers clearly about this risk. Again, good news if it happens!

Credit-card limits

Lenders increase limits on credit and store cards with absolutely no checks on the borrower. I know several people who are terrible with their money, some of them low-earners or unemployed, who've seen their limits raised in the past few years. Many such borrowers see it as a target, not a limit, and I don't believe they fully understand just how expensive it is and how hard it is to pay it off.

The BERR is considering banning companies from increasing these limits without consent. Hooray!

The BERR might do all that...

The thing is, the BERR is just consulting at this stage. Let's hope it eventually works out in the customers' favour. What's likely to happen, I think, is the lenders will agree to do all this voluntarily and legislation (laws created by Parliament) won't be necessary. This is good, as it will mean it'll happen faster.

I do think though that the BERR should legislate to force lenders to do thorough checks on borrowers to ensure they can meet their debt obligations. Each time the lender wants to increase the credit limit or offer more credit, it should conduct the meticulous checks again. What's more, the lender should keep the evidence on records that can be audited, so that it's possible to see whether they lend responsibly or not.

And if the BERR could also just sort out these dozen dodgy credit-card tricks, I'll be happy!

> Compare credit cards at lovemoney.com