"Problem" credit card customers set to pay more

file_wizzard

LONDON (Reuters) - Credit card providers are poised to hit "problem" customers with higher interest rates as they attempt to protect their profit margins, a new report warns.

Those who persistently pay late or go over their credit limit are facing hikes in interest, as companies react to a regulatory squeeze, according to research firm Defaqto.

David Black, report author and head of banking at the company, said the UK was likely to follow the US lead, where it is "fairly common" for credit card providers to charge more interest to customers who default.

"Some providers will impose a rate increase after one default while others delay such an imposition until the customer's defaults become more chronic," he said.

"Given the 12 pound cap on charges (in the UK) , Defaqto expects some providers to choose this approach with some of their future credit card offerings."

However, those who repay their balance in full every month are unlikely to escape unscathed -- and could soon be hit with annual fees.

"Annual fees will more likely be introduced for people who pay off their balance every month rather than for those who carry debts," said Black.

The report is the latest to warn that product providers are seeking ways to maintain their profit margins after an industry crackdown on charges viewed as excessive.

The Office of Fair Trading forced firms to cut their credit card default charges to a maximum 12 pounds in September -- a move that is already affecting margins.

Firms are also facing regulatory action over credit card interchange fees -- charges paid by retailers on card transactions -- and expensive payment-protection insurance.

Accountant Pricewaterhouse Coopers warned last week of the re-introduction of annual credit card fees and changes are already under way.

Lloyds TSB recently launched its Premier Amex card, which gives a range of benefits in return for a 4.95 pound monthly fee. And earlier this month, the Co-operative Bank announced that its Platinum Base Rate Tracker and Northern Rock Base Rate Visa cards would carry a 2 pound monthly fee for new and existing customers.

Banks are also trying to claw back lost revenue from current account customers.

First Direct said last week it would hit customers who fail to deposit or maintain a balance of at least 1,500 pounds a month with a monthly charge of 10 pounds.

The Defaqto report added that the market for so-called "rate tarts" to switch from one 0 percent deal to another without incurring costs would narrow further.

Many providers have introduced balance transfer fees -- Sainsbury's Bank, Ulster Bank and three building societies (Britannia, Norwich and Peterborough, and Stroud and Swindon) are the only who still do not impose such fees -- and others have withdrawn interest-free offers for balances of more than 1,000 pounds completely.

Defaqto said more providers would exit the market in the next few years.

rog2

I thought they were already doing exactly that - MBNA and Capital One doubled my interest rate and late payment charges of £25 are still being added by MBNA.
Is this just a way to make these types of charge legal?

Xbigman

rog2 wrote:

Is this just a way to make these types of charge legal?

Yes.

All the CC companies know that attempting to charge yearly fees or other major new charges will meet a lot of consumer resistance. So they are hitting those who they have always hit, those in financial trouble who go over their limit.

So what has changed now the OFT has cut over limit charges to £12?
Answer. Nothing.
Regards


X

Xbigman

You could also argue banking is going the same way. One effect of first directs £10 a month charge is that those in financial trouble who keep going overdrawn won't have a good enough credit rating to qualify for 'other accounts' to get out of it. Nor will they get anything but a basic bank account elsewhere.
Regards



X

Broken_hearted

Well thats why capital one card was cut up and burnt, 26% interest and an £18 per year charge. They refunded all the annual fees but it was too late. In a way stupid charges are saving me money, as I won't have credit cards again.

The £1,500 into a bank account isn't possible for us, infact £1,000 a month isn't possible we just don't get it in the first place. So because we are on a low income we will be charged £120 a year madness.

climbgirl

Looks like the end of "free" banking all round. I've said it before but it just surprises me they haven't done it sooner given global banking trends.

The bit that annoys me most though is that those who pay their credit cards off in full each month will pay through monthly charges. To a certain degree it makes sense for those who misuse the accounts to pay (although I see how these charges can quickly spiral out of control which isn't right).

But this will spell an end to things like stoozing and cashback credit cards for those who use them properly. If they're going to charge me a tenner a month and only offer 1% cashback it's not going to be worth it.

I can't help feeling that all of the reclaiming of bank charges and the imposed lower default charges are being recouped by the banks in this way and it's going to hurt all of us...

dinkylou

Personally, I'm not liking the way things are going as I'm a cashback queen and so pay my cards off every month.

I also can't help but think that the ease and increasing number of IVA's/bankrupcies has something to do with this. The banks' revenge!

yung

well when my bank or any C C company start charging I will just have to cancel every account and card. they will be the looser.

by the way the £12 charge is just a guideline and it can still be disputed.

cattie1

funny that-I just got a letter in the post telling my my "stupid rate" credit card was going up in interest by an evener "stupider" amount!!!!

ZTD

yung wrote:

well when my bank or any C C company start charging I will just have to cancel every account and card. they will be the looser.

Yep, and don't forget the CC companies clock between 1-2% from every transaction you make. If everyone starts using cash they won't make that.