Two weeks to cut rates, card issuers told

Borrowers given more time to pay bills after government pressure

Credit card giants have been given two weeks to agree to stop charging exorbitant rates to borrowers or risk losing their operating licences.

Ministers said they were giving Britain's major lenders one last chance to prove they were not profiteering from the downturn. The ultimatum was delivered at a four-hour Whitehall summit called after The Independent disclosed some credit card and store card providers had raised interest rates – in some cases to 30 per cent – even though the cost of borrowing had fallen.

The credit card companies agreed last night to give borrowers who run into trouble paying their bills a "breathing space" of up to two months before they face action. They also pledged to draw up a clear "statement of principles" over their rates by 9 December. It will commit them to give clear information to borrowers, not alter rates constantly and charge "proportionate" levels of interest.

Lord Mandelson, the Business Secretary, and Gareth Thomas, the Consumer Affairs minister, told leaders of the industry that they were alarmed by lenders increasing their rates overnight without justification.

Government sources said they were encouraged by the companies' initial response, but demanded watertight commitments from them within a fortnight. Ministers warned they were prepared to refer firms that exploited borrowers to the Office of Fair Trading (OFT), the consumer watchdog.

The OFT has the authority to revoke licences from credit companies as an ultimate sanction.

In total, 13 credit card providers – including Royal Bank of Scotland Group, Lloyds TSB, HBOS, and Santander – attended the summit at the Department for Business, Enterprise and Regulatory Reform in London. Also there were big credit card prov-iders and smaller lenders. Consumer groups also attended.

The Independent's front-page story on 11 November disclosed that credit card providers have on average increased rates by 0.4 per cent to 17.6 per cent in the last six months despite Bank of England base rates falling to 3 per cent. Later that day, this newspaper secured a commitment from Gordon Brown that he would take action.

The industry argues that the credit card industry still remains highly competitive and that official interest rates bear little relation to the cost of offering credit card borrowing.

In the Commons yesterday, the Prime Minister vowed: "We have got to have proper measures to regulate the industry where people are charging exorbitant rates and we will take whatever action is necessary."

He was responding to the Labour MP Colin Burgon, who told him about "unscrupulous money lenders such as Mobile Money Limited who recently sent a letter to a student constituent of mine offering to lend her £5,000 in cash with no credit checks at interest rates of 378 per cent".