The EU’s Consumer Credit Directive came into force on 1st February, leading to some significant changes for UK consumers.  Here are the three most important changes brought about by this new legislation.

Change to the ‘hierarchy of payments’

The main benefit of the new rules for consumers is the outlawing of the ‘negative order of payments’ on credit cards.

Previously, lenders had been able to allocate your monthly repayments to the portion of your borrowing with the lowest interest rate.  This meant that you could be clearing low rate balances whilst higher rate purchases attracted significant interest charges.

Now, your payments will go towards clearing the most expensive debt first, potentially saving you hundreds of pounds in interest.

Fewer borrowers will benefit from the advertised rate

Whilst the above change will benefit consumers, changes to the way credit cards are advertised may mean that other borrowers may find it harder to benefit from the lowest rates.

Until now, providers had to offer the advertised credit card rate to at least 66 per cent of successful applicants.  Now, however, they have to offer the rate to just 51 per cent of applicants, meaning fewer consumers will benefit from the lowest rates.

Nearly half of those who successfully apply for a new credit card or loan may now be offered a higher rate of interest than the one they saw advertised.

More consumer rights

The Directive also gives consumers improved rights.  For example, you will now benefit from a fourteen day ‘cooling off’ period during which time you can cancel a credit card agreement if you have changed your mind.

In addition, banks must now also give at least 60 days notice of any increase in credit card rates whilst consumers also have the right to reject such increases and pay off their borrowing at the interest rate already agreed.

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