Our response to Labour’s credit card interest cap proposals
Matthew Cheetham, CEO of Harrington Brooks said in response to Labour’s plans to cap credit card interest:
“It’s encouraging that Labour recognises the pressure that persistent credit card debt can have on people. High interest charges and low minimum repayments can mean that consumers struggle to make ends meet and it can take years to get out of debt.
“For example*, if a borrower had just £500 on a credit card with an average interest rate of 18.9% and only made the minimum payment of 2% of the balance or £5 a month, it would take them 17 years and 6 months to clear what they owed. Even without the £830 they’d pay in interest, it’s clear that something needs to be done to help those with long-term credit card debt.
“Increasing the minimum monthly payment percentage would help in two ways. For those who can afford it, it would clear their debts faster. And for those that can’t afford to make the repayments, it will crystallise the problem and get them to seek professional help sooner rather than later and prevent unsustainable debt building up even more.
“At Harrington Brooks, the first time some consumers get in touch is when they have eight credit cards and are struggling to make the minimum repayments on any of these. The creditors aren’t aware that there is a problem because the minimum repayment is being made. Addressing the problem debt early will be better for both customers and creditors.
“Ensuring that consumers must clear a certain percentage of the previous month’s balance before they’re allowed to borrow any more could also prevent unsustainable levels of debt from building up.
“This type of discussion is a step in the right direction and we urge the Government to consider proposals to support financially vulnerable people. By doing this, we can help people move towards a place of sustainable financial wellbeing and help them stay in control of their finances going forwards.”