Leading Credit Card Lawyer Calls for Introduction of Prepaid Credit Cards to Alleviate Consumer Debt

LONDON March 24, 2004 -- The credit card industry has been heavily criticised over the past few months, culminating with a damning report by the Treasury Select Committee. The industry's cause was not helped by the outspoken remarks by the chief executive of Barclays, in his evidence to the Select Committee, when he said he had warned his children about borrowing on credit cards as they were ‘too expensive'.

Britons now own over 60 per cent of the 100 million credit cards in issue in the European Union and indebtedness is now reaching near unmanageable levels. The Department of Trade and Industry, in its response to the Select Committee's report, has advised potential borrowers to ask themselves three questions before taking on credit card debt: How much will it cost? Can I afford it? What happens if it goes wrong?

But is this enough? Robert Courtneidge, a partner at City law firm Osborne Clarke and the UK's only independent lawyer specialising in credit cards, thinks more can be done. "The Government, the banks and the Office of Fair Trading should be asking what more they can do to help people manage their money better. The DTI said that it was ultimately the consumer's responsibility for taking on debt, but it did concede that many were too financially illiterate to be expected to behave sensibly."

In the United States many card providers, through the Visa and MasterCard networks, have introduced ‘prepaid' cards which have proved to be phenomenally successful. By ‘pre-loading' their card, users do not face the prospect of getting into debt or paying high interest rates on purchases and cash advances as they are only able to spend up to the amount on the card.

"This is a idea that the UK banks should be introducing," says Mr Courtneidge. "The concept of prepaid cards is well established in the mobile telephone market, and is a way of avoiding racking up massive telephone bills. The concept could easily be translated to plastic cards in the UK.

"We have two traditional ways of making our purchases," continues Mr Courtneidge. "With a credit card where it is buy now and pay later. With a debit card where it is buy now and pay now. The industry should be looking to introduce a third way: with a prepaid card where you pay now and buy later."

Recently, Visa reported that in 2003 greater mainstream awareness and greater popularity of its prepaid cards resulted in a 240% increase in sales and cash volumes. Visa said that the annual volume placed on its prepaid cards now exceeds US$1billion and is on track to reach US$50billion volume in the next five years. Both Visa and MasterCard have estimated that the US prepaid card market has the potential to exceed US$2trillion.

Notes to Editor
Robert Courtneidge, Partner, Osborne Clarke. Robert is a specialist IT partner, who has worked in the cards and payments systems arena since 1989, covering all aspects of consumer finance and the technology behind it. In particular, he focuses on areas such as bank cards, payment systems, consumer protection, data protection and information technology. He has worked in-house for much of his career, initially for part of Lloyds TSB Group, then for Citibank in the UK. Since moving back to private practice, his client list ranges from major banks and card organisations to Internet start-ups, call centres and ISP's. Robert joined Osborne Clarke as a Partner in July 2001.



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