Credit card rates should not increase

Credit card interest rate charges should be capped to help smaller firms cope with the downturn, the small business industry body has said.

In its message for 2009, the Federation of Small Businesses (FSB) said with the base rate currently held at 2%, the Chancellor and Bank of England must consider its next steps.

It said that any next steps made should look to cut business costs but give customers a real boost and stem the cost of borrowing”. This comes after credit card companies last year agreed to a set of “fair principles”.

These new principles, set during mid December, should see credit card issuers back off from raising interest rates when customers fall into arrears on late payments.
The arrangement came after credit card firms faced increased pressure from the government to give more help to struggling consumers.

Tighter measures introduced have also included an option for consumers to transfer deals, or freeze the account and pay off debts at the existing interest rate if the card firms suddenly decides to raise its Annual Percentage Rate (APR).

The British government wanted to tackle risk-based pricing, when credit card companies took swift decisions to raise the interest charged based on the risk of people defaulting on their borrowing.

Meanwhile in the New Year speech, the Federation of Small Businesses ’s chairman John Wright also called for a limit on the “tide” of regulations which he said were “drowning” small businesses. “2009 must be a year of action for small firms,” he added.

“The small business sector is the sector to see the UK ride out of the recession.
“Small businesses are dynamic, enterprising and creative, but an increase in late payments, a decline in trade and poor access to finance will leave thousands facing closure during 2009.”