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A new code of fair practice has been agreed between the card issuers and the Government. The code requires lenders to give more notice of rate increases and to allow borrowers more breathing space to pay their debts.

Whilst attending a credit card summit, the Consumer Affairs Minister, Gareth Thomas, warned the providers of credit cards that if they did not pledge to treat customers fairly, he would arrange an investigation by the Office of Fair Trading.

The Government had originally expressed concern about the credit card companies failing to pass on cuts in interest rates to their customers. It has stopped short of insisting that these cuts are passed on, saying that it will keep an eye on the situation.

Their new policy states that they will not increase interest rates within twelve months of a store or credit card being taken out. In addition, the rates will not be increased more frequently than every 6 months following the initial 12 month period.

A minimum of 30 days notice will always be given to customers of a rise in interest rates. They can opt for closing their account and settling their debt at the current rate, if they wish.

Providers also agreed that borrowers, who had got behind with payments, or had approached a debt agency for assistance, would not be faced with an increase in interest rates.

These measures are additional to a promise that a breathing space of 60 days would be given to people in financial difficulties, which would enable them to prepare a repayment plan with the assistance of a debt advice charity, prior to them being chased for outstanding debts.

Mr Thomas said that he was pleased with the commitments made by the card companies. Although he realised that the credit card companies would suffer a hit financially, he felt that bad practices had to be nipped in the bud, as they were causing real hardship to customers. These undertakings will assist families in managing their finances and coping with the repayment of their debts, he concluded.

The Government advise borrowers, who have seen a sharp rise in their interest rates of as much as 10 per cent, to complain to their card company, if they consider the rise to be unfair. If the response of the lender is unsatisfactory, then they should report the matter to the Financial Ombudsman Service.

The Government has instructed the Office of Fair Trading to keep an eye on the implementation of the new principles, which commenced on January 1 st .

Malcolm Hurlston, who is the chairman of the CCCS (Consumer Credit Counselling Service), applauded the commitment of the credit card companies. He said that through agreeing to freeze interest rates for those people struggling to fund repayments, the credit card companies had taken a major step towards ensuring bad personal situations did not become even worse. He added that the best credit card companies had set an example by freezing charges, interest and fines relating to clients, who participated in a CCCS debt management plan or any other scheme run by a non-profit agency. Their action was a shining example to all credit card companies, he said.