The Department of Business Innovation & Skills wanted to ensure the UK has responsible and fair lending and borrowing.

A consultation on credit and store cards has been launched today by the Department for Business Innovation & Skills (BIS), in an effort to challenge the fairness of credit card terms.

According to BIS, people in the UK have £230 billion in debt on credit cards, loans, store cards and other credit deals, and although the economic crisis has made it more difficult for people to borrow money, those with access to credit cards have been turning to them as an easy source of money.

BIS suggests that consumers applying for credit cards do not always know what they are signing up for, or fully understand the consequences of building debt through this type of borrowing.

The consultation will look at five areas:

• Allocation of payments – lower interest debts being paid off first
• Minimum payments – minimum payments only covering interest, not capital
• Unsolicited credit limit increases – card limits going up without your consent
• Re-pricing of existing debt – increased interest rates without proper explanation
• Simplicity and transparency – making the costs of using a card simpler to understand and easier to compare alternatives

MoneySavingExpert.com creator, Martin Lewis, commented: “The credit card industry has already spent serious money on lobbying to weaken these proposals and they will continue to do so. They will say these things cannot happen. It is crucial here that consumers stand up and feedback their views on what should happen”

One area that has been particularly highlighted is that of minimum payments. Kevin Brennan, Consumer Minister, told the BBC: “Most consumers are quite shocked when you tell them that if you only pay the minimum repayment it could take you up to 40 years to pay off the debt on your credit card.”

Melanie Johnson, Chair of the UK Cards Association, welcomed the consultation, but warned that the proposals could lead to less choice for customers and inadvertently cost them more.

She commented: “The industry wants to get things right for its customers. We need to be able to demonstrate what impact these would have on consumer choice and the costs to customers of using credit cards.

“We have seen customers respond to the credit crunch by using their credit cards differently than was the case figure years ago. These are important changes to the credit landscape and it’s important we maintain the flow of credit to customers who want to have the flexibility and ease of use that credit cards offer.”

Mr Brennan explained that it is important to have responsible and fair lending and borrowing in the UK, which he claims is not rightly balanced between the consumer and credit card companies currently.

“We’re consulting on a number of proposals to try and redress the balance and make sure we’ve got consumers in the driving seat when they use their credit cards.”

Mr Brennan conceded that not all consumers will welcome the proposals.