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British credit card companies to ease rate hikes

(Agencies)
Updated: 2008-12-12 15:49

LONDON -- Credit card companies have agreed to stop the practice of abruptly raising the rates paid by their most vulnerable customers, the British government said Friday. 

A credit card transaction in a file photo. Credit card companies have agreed to stop the practice of abruptly raising the rates paid by their most vulnerable customers, the British government said Friday. [Agencies]

The credit card industry had been under pressure from Britain's center-left government to change the practice of "risk-based repricing," which targets those who are in danger of defaulting on their loans by jacking up interest rates on troubled borrowers by as much as 10 percentage points or more.

The UK has the highest level of credit card debt of 14 European countries studied by the Datamonitor research group, and the government is hoping to avoid a rash of personal bankruptcies and credit problems that could deepen the effects of the economic downturn.

But credit card companies' interest rates have actually gone up over the past few months despite cuts in the Bank of England base rate, and the government has been pressing them to end some of their harsher practices in an effort to give debt-ridden Britons a bit of extra room to breathe.

On Friday officials announced they had reached a compromise: Credit card companies have promised to give cardholders 30 days' notice before cranking up the interest on their debt, giving them time to make alternative arrangements, rather than simply hiking the rates overnight.

The government also said that struggling borrowers would be given a two-month grace period before being slapped with a rate increase if they were seeking help from a debt advice professionals.

"There is much good news here," said Malcolm Hurlston, the chairman of Britain's Consumer Credit Counseling Service, calling the move "a significant step and will help ensure bad personal situations are not made worse."