Consumer minister Kevin Brennan said: "Card companies have got to get their act together and do more for consumers. The government is putting forward new measures which we believe will give consumers a better deal.
"It is not acceptable for card companies to impose complex and confusing terms and conditions that can leave people baffled, or to increase interest rates without proper explanation."
So what's being proposed?
Ending the negative payment hierarchy
The government is considering forcing card providers to put an end to the negative payment hierarchy that costs some borrowers thousands of pounds.
Independent research carried out for moneysupermarket.com found that most credit card users do not realise that all but two UK card companies use their monthly payments to clear the cheapest debt - on the lowest interest rate - first. Nationwide and Saga are the only providers who use monthly repayments to clear the most expensive debt first.
Only one-third of Britons are aware that when they sign up to a card with say a 0% introductory rate on balance transfers but a 16% interest rate for purchases, the payments they make each month will go towards paying off the interest-free balance transferred.
But this negative payment hierarchy could cost them hundreds or even thousands of pounds as their more expensive debts continue accruing interest at a higher rate.
How can I avoid being caught out by a negative payment hierarchy?
If used incorrectly, negative payment hierarchy can hit credit card borrowers' pockets hard.
If a consumer is caught out by a negative payment hierarchy and their monthly payment is used to clear the cheapest debt first, they pay almost twice as much in interest on a £3,500 debt than they would using a card that pays off expensive debt first.
That equates to hundreds of pounds over the life of the debt, and the figure is obviously higher for those with larger credit card balances.
But while few people are aware of this, moneysupermarket.com's research also found that consumers who become aware of the repayment strategy feel cheated and angry. Only 9% of those confronted with the reality said they were not bothered by it.
The government agrees with the majority of consumers, which is why it is considering forcing all credit card providers to adopt a positive payment hierarchy.
Increasing minimum payments
As well as tackling payment hierarchy, the government is considering increasing minimum monthly payments in a bid to make customers pay off their debts more quickly.
The minimum you are required to pay off your credit card balance each month can be as little as 2%, or £5 whichever is greater. But if you only pay this amount it can literally take decades to clear your balance and cost thousands of pounds in extra interest. For example, if you owe £2,000 on a credit card which charges an annual interest rate of 18.9% and only repay the 2% minimum, it would take 39 years and one month to clear your debt and you'd pay nearly £5,000 in interest.
Banning unsolicited credit increases
Credit card providers will consider increasing a customer's credit limit but some do this even without the customer requesting it. The government wants to put a stop to this as it can encourage people to get further in to debt.
Restricting interest rate increases for existing borrowers
Interest rates on most credit cards are variable. However, many card providers have faced heavy criticism recently for hiking the rates they charge existing borrowers. In some instances people have seen their annual interest rate more than double - a bitter pill to swallow at any time, let alone when the Bank of England base rate is at a historic low.
Credit card providers blame a number of factors including rising levels of bad debts and defaults, but the government is critical. It argues that those who pay on time and manage their cards responsibly should not be penalised and pay the prices for excessive risk-taking by banks and building societies historically.
What's been the response to the credit card consultation?
The credit card industry claims that the governments proposals could impede consumer choice and increase costs to customers.
Melanie Johnson, chairman of the UK Cards Association, said: "The industry wants to get things right for its customers, but these proposals risk disadvantaging more customers than they protect."
However, consumer experts disagree. Clare Francis, moneysupermarket.com's editor, said: "It's no surprise that the credit card industry has responded in this way but ultimately consumers want to be treated fairly. Our research highlighted that many people don't understand the complicated terms and conditions of their credit card. Some would argue that it is up to the individual to know what they are signing up for.
"While to a certain extent that is true, the industry also has a responsibility to make these terms less complicated. A simpler, fairer system will ultimately benefit the consumer - at the moment too many are being caught out and it is costing them dear."
What do you think? Let us know your views...
If you've been caught out by any of the practices the government wants to clam down on, or have a question about credit cards, visit moneysupermarket.com's forum where representatives from the Department for Business, Innovation and Skills will be on hand today to answer your questions.
For more information on the consultation visit the BIS website.
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