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UK credit card providers have inflated interest charges by up to 12% in an effort to recoup lost revenue after the consumer watchdog ordered them to cut late payment fees earlier this year, a report shows.
Moneyfacts , the financial data firm, said 19 leading credit card issuers have hiked their rates since the Office of Fair Trading (OFT) told them to cap late payment charges at £12 earlier this year. Some credit card firms charged up to £30 if cardholders failed to meet the minimum monthly payment on their credit card.
American Express, Barclaycard, Halifax, HSBC, NatWest and Lloyds TSB cardholders are among those who have seen their interest payment soar in recent months, Moneyfacts says.
American Express has raised the rate on one card by 6 per cent , while Barclaycard's Simplicity platinum card customers have seen the interest rate they have to pay for cash withdrawals go up by 12.1 percentage points to 27. 9 per cent .
Research by the comparison firm uSwitch.com shows that the credit card industry was making £679 million in penalty charges each year before the OFT rules were imposed. This figure has now dropped to £379 million.
In addition to increasing rates, credit card companies are desperately trying to recover the lost revenue through stealth charges such as balance transfer fees, cash advance fees and amends to order of repayments.
The average increase in balance transfer fees alone since July could generate £363 million in the next year, according to uSwitch.
Lisa Taylor , of Moneyfacts, says: "While it may be argued that the 0.2 per cent increase to base rate in August resulted in some of these increases, with rises of up to 12.1 per cent it is clear other forces are at play.
"Rising bad debts and the lost fee revenue has left many providers with no choice but to look for alternative avenues for income. And it seems, raising interest rates is a popular option. For many consumers this rise may go unnoticed – but should they take the time to look at the long term consequences, they could be in for a nasty surprise."
Nick White, head of personal finance at uSwitch, said: "Unfortunately, these developments come as no surprise and will no doubt continue to happen across the credit card industry. They are unlikely to write off the additional £300 million a year generated by the old levels of default charges. With this in mind, consumers need to be even more alert when taking out a new credit card that they don’t get carried away with the headline grabbing rate." The Times September 26th, 2006
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