Some customers of the high street banks are now enjoying lower interest rates as the banks came under pressure to step up their help for people struggling with their finances. Within the current UK climate, a number of people are finding it difficult to make ends meet because of unforeseen circumstances. The threat of redundancy is an ongoing worry and many companies are forced to put employees on to short time. The initial reaction to a large company suspending workers on basic pay might be not too bad, but the realisation that this pay will be cut to less than two thirds after a certain period really strikes home. And what does the job market hold in the future?
About three million of the banks lowest risk customers will see their rate plummet by between 2.5 and 5 percentage points. But critics have berated credit card firms for not reacting quickly enough to the drops in the Bank of England s Bank Rate. The credit card interest rate in the UK is on average more than 10 times the Bank Rate. In the UK there are 31 million credit cardholders, around 50 per cent clear their debts at the end of every month.
The initiative from the high street banks follows a meeting with the major UK credit card providers and the government where agreed a new set of fair principles was agreed. Other moves from the firm include a financial support helpline, lower rates for new customers and a minimum four month rate freeze for existing customers.
The banks also claim they have made a commitment not to contact late payers for up to two months, providing they were actively trying to sort out their financial difficulties. This seems like good news, but it is not good for everyone. It appears that while the interest rate cut would benefit three million customers, an additional nine million would not see their rate decrease as their risk of defaulting had gone up.
A spokesperson for the high street banks said, It s a difficult time for many customers and for some their risk has gone up. He went on to say that while the Bank Rate had come down sharply, the cost to the banks of borrowing money to lend to their customers represented just one element of their business.
Since being threatened with referral to the Office for Fair Trading, card firms adopted a new code of conduct last month. They have agreed to allow some breathing space for those consumers finding it difficult to meet repayments.
Under the new code, credit card companies will provide customers with at least 30 days notice if they intend to increase their interest rates. When a customer signs up for a card at an agreed rate of interest, credit card companies will not be able to raise this rate for a whole year. Following this initial twelve month period, rates will be allowed to increase but only once every six months. They also agreed not to increase rates for people in financial trouble this covers those who have not even made minimum payments or who are obtaining assistance from a debt advice service.
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