New rights secured for credit card users could save consumers almost £300m a year, it was yesterday claimed.
The agreement between the government and the credit and store card companies is part of a package of measures to tackle debt.
The industry will introduce the new changes this year.
“These new rights will put an end to the irresponsible lending practices that people have been most concerned about, and help cut the cost of borrowing,” said Prime Minister Gordon Brown.
Currently, when cardholders transfer a debt to a card provider at a zero or low rate of interest, and then purchase items on the card at a higher rate of interest, most card companies force them to pay off the cheaper debt first.
Under the new agreement, the most expensive debt on consumers’ cards will be paid off first.
Consumers will now be given 60 days to switch provider if informed of an increase in their interest rate and will be able to reject any offer of an increase in their credit limit.
They will also receive an annual statement that allows for easy cost comparison with other providers.
People at risk of financial difficulties will be protected by a ban on increases in their credit limit and clear information on increases in their interest rate.
Brown said: “Step by step we are reinventing the financial services industry after the global financial crisis and moving the balance of power back towards consumers.”
Lenders that do not comply with the new rules could face tough penalties as part of the clampdown, including such measures as having their licences revoked.