Know your new rights in the great credit card clampdown

Thousands of people whose credit card rates are increased suddenly were promised new rights last week, though critics said it would do little to stop the practice.

The government announced plans to clamp down on the industry to make it fairer and more transparent. The proposals, announced by the Department for Business, Innovation and Skills (BIS), outlined five rights that, it claims, could save consumers £300m a year.

They include the right to pay off the most expensive debt first when there has been a balance transfer, more time to reject increased rates, and better access to information.

Sunday Times readers have complained that their credit card rates have risen recently — in some cases by as much as seven percentage points.

Egg, part of Citibank, Halifax, Capital One and Virgin Money have all increased rates for some customers this month.

James Taylor, 54, who runs an advertising agency in Reading, received a letter from Capital One saying he would have to accept a seven percentage point increase in his purchase rate to 27.9% or stop making new purchases on the card.

He said: “It’s like being in a restaurant and finding out that the meal that would have cost you £10 will now cost £20. I felt I was being held hostage.”

He has declined Capital One’s higher rate and switched to another provider.

Capital One said: “We must adjust rates to account appropriately for the increased risk of lending to consumers in an economic downturn.”

The government’s new rules will not ban the practice but will increase the amount of notice card firms must give from 30 to 60 days.

David Black of Defaqto, the data firm, said: “The new rules will offer a comfort blanket to consumers but if you have already had your rates increased, these measures will offer little protection. The best you can do is to switch to another card with a 0% introductory rate on balance transfers.”

However, Virgin Money last week cut its 0% offer from 16 months to 14 months, leaving the Barclaycard Platinum at the top of the best-buy tables with 15 months interest free.

It is hoped the new credit card rules will be in place by the end of the year. However, two providers have indicated they will not be able to introduce higher minimum repayments this year because of “technical difficulties”, BIS said.

Here we assess the new rights:

1 RIGHT TO REPAY QUICKER

One of the main benefits for consumers is the drive towards a “positive order of repayments”, where the most expensive debt is paid off first. Today, almost 80% of cards pay off the cheapest debt first, said Defaqto.

Say you transferred £2,000 to a card offering 0% on balance transfers for 12 months but charged 18.9% on purchases from day one. Say you also made £2,000 of purchases and paid back £190 a month.

With a negative order of repayments (where the cheapest debt is paid off first), you would pay a total of £410 in interest in the first year and still be left with a balance of £2,130 to repay, said Moneynet, the comparison site.

If the payments were going to the most expensive debt first, you would pay £187 in interest. The £2,000 on purchases would have been repaid, assuming you made no other purchase during the year and you would be left with the £2,000 on the balance transfer to pay off.

There are only two providers that now offer a positive order of repayments — Nationwide and Saga — the latter provides services only to the over-fifties.

Black suggests having two cards if you want to take advantage of balance transfer introductory offers and 0% on purchases. For balance transfers he suggests the Barclaycard Platinum, which offers 15 months at 0%. There is a 2.9% fee and its free purchase period lasts only three months. For purchases, you would be better off with a Tesco Clubcard, which has 12 months interest-free on purchases.

If you would rather have one card, consider the AA credit card, which offers 0% on balance transfers and purchases until November 2010.

Another measure is to force customers to pay off at least 1% of the debt on top of interest and other charges, to ensure they pay off the balance faster.

2 RIGHT TO REJECT RATE RISES

Customers will also be given 60 days’ notice that their interest rates will increase rather than the 30 days that providers offer today. However, they will still have to stop using the card if the new rate is rejected but can pay off the debt at the old rate.

Customers can also reject automatic credit limit increases and providers will be banned from increasing limits for those at risk of falling into financial trouble. And customers will be able to ask for a reduction in credit limits online rather than through customer services.

3 RIGHT TO CHECK YOUR CREDIT FILE ONLINE

Consumers will have better access to the credit files used by providers to determine how risky a customer is. You can already access your file for £2 from Call Credit, Equifax and Experian, but these are sent by post. BIS wants reports available online. Equifax already offers this service, while the other two have until June to comply.

Consumers will also be given more information about the way they use their cards. A minimum payments warning will be sent, for example, highlighting the overall cost of paying only the minimum each month. An annual credit card statement will also be issued allowing you to compare your spending and interest charges from one year to the next.

Greece Concerns Surface in Currency Markets

While European stock markets are taking recent jitters about European support for Greece in stride, concerns are bubbling up in the foreign-exchange and credit markets. The euro is down 0.3% against the U.S. dollar to $1.3578, after falling about 1% yesterday from a height of $1.3740 and briefly crossing beneath the $1.35 level. The last time Europe’s common currency ended a New York trading session below $1.35 was May 2009.

Meanwhile, traders in the credit-default swaps market are again bidding up the price of government debt insurance as uncertainty mounts over the nature of any Greek financial-rescue plan. The cost of insuring against a Greek government debt default for five years is now about $322,000 a year compared with $316,000 yesterday and below $300,000 earlier this week, according to data provider CMA DataVision. (Greece insurance costs are still below the $350,000 to $425,000 range they occupied throughout February when Greece debt woes were center stage.) Credit insurance costs for Portugal and Spain are also slightly higher.

The reason for the ruckus: With German officials now seeming to change gears and be more open to involvement by the International Monetary Fund in any emergency Greece rescue plan, investors and analysts are worried about the impact on the broader euro-zone. IMF involvement could, like some European countries fear, be a major embarrassment that weakens the long-term credibility of the euro. Still, it may be premature to be too bearish: While the euro isn’t out of the woods yet, the end-game for Greece could be in the wings.

“The sudden German turn-around caught markets off guard,” analysts at Italian bank UniCredit say. They add, however, that “we think the short-term risks are limited, as financial support will most likely be pledged soon by either the (European Union) or the IMF.” Next week’s European Union summit could therefore be pivotal.

Bad credit can mean higher insurance premiums

policyholders are well aware a hurricane is guaranteed to hike insurance rates, but fewer realize their credit reports also are factored into homeowner and automobile insurance premiums.

Consumers who have suffered financial setbacks because of the economy are seeing higher homeowner and auto insurance premiums, but the mistakes often found in credit reports also can lead to rate hikes.

Even Mississippi Insurance Commissioner Mike Chaney said that he recently faced a 10 percent increase in his Safeco auto insurance rate because of an error on the insurer’s part.

He said his rate was corrected when he questioned the charge, based on his credit history.

“The bottom line was, when we got down to it, they had rated me a credit risk because the agent had checked that I was eligible to pay on installment,” said Chaney, who pays his premiums in a lump sum. “My credit history is very good because I have a thin credit file, very little credit.”

Insurance companies contend consumers with bad credit tend to file more property insurance claims. Consumer advocates question the accuracy of studies that find a correlation between credit and risk. They also argue the industry should stick with more relevant risk indicators, such as claims history and the condition of property being insured.

The debate is attracting more attention as a bad economy affects consumer credit and also has consumers scrutinizing their expenses.

Chaney sides with consumer advocates who believe insurance companies use credit histories to cherry pick customers and charge higher premiums. The commissioner said credit information in some cases allows insurance companies to raise premiums without a state-approved rate increase.

“It’s a serious game for them,” Chaney said. “It’s always about money.”

Insurers defend their use of credit reports to develop insurance scores, which dates to the mid-1990s.

They cite a 2007 Federal Trade Commission study that found credit-based insurance scores do predict risk for automobile policies. Studies sponsored by insurance companies, and the state of Texas, have reached similar conclusions.

Insurance companies point out that customers with good credit are rewarded with lower premiums. They view rates partly based on credit as an equitable way to set premiums.

“If you’re conservative with your finances, you manage your finances and credit well, typically, you’re also going to be an individual who is less likely to be involved in an accident,” said Robert Hartwig, who heads the industry’s nonprofit Insurance Information Institute. “You’re going to be someone who is more likely to obey speed limits. You’re going to be someone who is less likely to drive impaired. You’re going to be less likely to be someone who fails to perform maintenance on your car.

Scale of China's export credit insurance and guarantee up over 80%

China Exports & Credit Insurance Corporation (Sinosure) completed 11.66 billion U.S. dollars worth of insurance and guarantee business in 2009 amid a severe international trade situation, an increase of 85.8 percent year-on-year.

Of them, short-term export credit insurance policies amounted to 90.27 billion U.S. dollars, representing 2.2 times that in 2008, and not only meeting but exceeding the target of 84 billion U.S. dollars set in national policies ahead of schedule.

In 2009, the proportion of exports covered by export credit insurance to total exports rose significantly, with the export credit insurance coverage on the general export trade reaching 18.6 percent, 12.1 percentage points higher than that of 2008.

The support given to exports by major industries or exports to emerging markets has achieved new progress, helping enterprises export 49.15 billion U.S. dollars of goods to emerging markets such as Africa, Latin America and Central and Eastern Europe, up 114.1 percent year-on-year.

The results of the support to help enterprises seize orders and maintain market shares are emerging. Regarding the problems that "enterprises were afraid to receive orders," Sinosure issued more short-term export credit insurance policies, with the amount of 30-day or longer export credit insurance policies rising by 144.9 percent in 2009. Regarding the problems that "enterprises lack the financial capacities to receive orders," Sinosure actively issued export credit insurance policies to help enterprises secure trade financing totaling more than 160 billion yuan.

EU Approves Austrian Short-Term Export Credit Insurance Plan

BRUSSELS (Dow Jones)--The European Commission Thursday cleared the Austrian government to provide export credit insurance to help countries unable to find coverage from private sources.

The government scheme, which is cleared to run until the end of 2010, is designed to help Austrian exporters cope with the fallout from the financial crisis.

The commission, the European Union's regulatory arm, has cleared similar measures for other countries in the bloc.