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The recent economic downturn has taken everyone by surprise and its rapid descent into a full-blown recession has made financial institutions take a serious look at how they do business. In contrast to other recessions the general public have been hit much harder and much earlier than before. This is due to one simple factor " the current recession is the direct result of a flood of easy credit during the eighties and nineties. Now those financial chickens have come home to roost. The last few weeks have seen the government enforce new regulations on the credit card lenders and financial institutions in an attempt to take some of the pressure off the public and give them a little bit of wriggle room when it comes to sorting out their finances. Previously the credit card lenders had come under considerable criticism for their heavy handed methods of dealing with those whom found themselves in financial difficulties and defaulted on payments. But with the beginnings of what looks to be a longer term financial winter it is clear that many more people will struggle in the coming months to meet their financial commitments. To this end the government has stepped in and insisted that customers have time to consult independent advisors and have more protection before becoming subject to action from lenders. Under the new regulations credit card customers who have difficulties will be given a 30-day breathing space to take an opportunity to discuss their situation with the Citizens Advice Bureau. Here they will be able to receive free, impartial advice and guidance as to how they can negotiate an agreement with their creditors and arrange suitable repayment terms that take into account their financial situation. If an agreement cannot be reached within this period, there is a further 30-day buffer period during which the credit card lender cannot make payment demands until the situation is solved. However, if no agreement has been reached by the end of this second timeframe then the picture can become much bleaker and the lender has the right to pursue payment fully. Another important change to the regulations that the government has insisted upon is that credit card lenders will not be able to change their interest rates during the first 12 months of a customer's time with the company. This has been instigated as a direct result of complaints from customers about significant increases in interest rates only weeks or months after a promotional offer has been taken up. Although increasing the interest rate is not an illegal move, the government perhaps considered it somewhat unethical, particularly in a time of economic hardship and at a period when the base rate of interest is at its lowest in the Bank of Englands history. These regulations, although perhaps seen as a knee-jerk reaction by the financial institutions, are not entirely an altruistic act on the part of the government. The intention is to keep the credit card market viable but to minimise the exposure to bad debt for the lenders and to give the public some reassurance that they will not be subject to excessive interest rate increases and have a little room to manoeuvre if personal circumstances change for the worse. Combined with the possibility of interest rate capping, these actions may cause the credit card lenders to become stricter over lending criteria, making it more difficult to get credit in the first place. However, for those who have a good credit rating and are willing to take full responsibility for their finances, there are still some very good credit card deals to be had and the lenders still want to encourage custom, even in the middle of a recession. As long as the economy keeps spending, the full brunt of a complete economic collapse can be avoided. The new legislation will have an impact on how credit card deals are presented to the public by the lenders, and perhaps this change in policy will lead to a more open and transparent lending system where people are made fully aware of their responsibilities right from the outset. Those with good credit ratings will still be able to continue to take advantage of credit card deals and as long as they manage their finances responsibly there should be no problem. The two 30-day periods that have been designed not for customers to miss a couple of payments but to re-establish a good relationship with their lender, are also a step in the right direction and should help to keep both credit card lenders and their customers happy.
Article Source: http://www.ezine-directory.info
Tim Jones is a financial writer that concerntrates on informing readers on current events in the credit market . You can find further information on the credit card here.
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