Personal finance

| Submit CommentSubmit Comments | View Comments(1)



advertisement

Credit card fees could return


14/11/2005

CONSUMERS are likely to face annual fees on their credit cards as issuers struggle to make profits in the face of "rate tarts" and bad debtors, a report warned today.

Credit card companies' margins have been hit by a combination of rising credit losses, increased regulation and people constantly shifting outstanding balances between cards to make the most of introductory offers, according to PricewaterhouseCoopers.

The group estimates these so-called rate tarts have cost the industry around £600 million in lost revenue on balance transfers, despite the fact that many providers have introduced 2% balance transfer fees.

PwC also said people entering into Individual Voluntary Arrangements, under which interest on debt is frozen in exchange for the person agreeing to repay a set amount each month, now owed an average of £60,000 to 11 different creditors.

The amount of unsecured debt consumers owed, including credit cards and loans, had risen by 8.4% during the 12 months to the end of June to around £189 billion, according to the group.

It expects this to increase further to around £200 billion by June next year.

But while credit card debt had increased significantly during the past five years, it said the number of cards in issue had also risen by a similar amount, leading to little movement in overall card balances.

At the same time PwC estimates that revenue per card, after defaults but before fees, is likely to have halved due to competitive pressures and increasing bad debts.

Claw back

It predicted that, as a result, companies were likely to reintroduce annual fees on cards as they tried to claw back some money.

Richard Thompson, partner at PricewaterhouseCoopers, said: "Credit card providers are coming under increasing pressure from fierce competition and mounting regulatory scrutiny.

"The industry is being subject to a number of separate inquiries by different regulatory bodies, looking at virtually every source of income.

"Some aspects of these inquiries appear to be based on the assumption of excess profitability but there is a danger that different inquiries are targeting the same profit pool.

"The impact may therefore be a waterbed effect whereby costs are simply reallocated between different groups of consumers. It remains to be seen whether a more equitable position will be achieved."

Credit card providers were likely to have to work harder to hold on to customers, with people increasingly looking for schemes that would reward their loyalty, PwC said.

The report also predicted there would be a reduction in interest rates charged by store cards following the recent Competition Commission investigation into the sector.

But it warned this could lead to more people having their applications for one of the cards turned down.


| Submit CommentSubmit Comments | View CommentsView Comments(1)


Most recent 1 of 1 user comments

   So the credit card companies shoot themselves in the foot trying to grab other company's business and lend irresponsibly and to make up their profits then charge all of their customers. Do they really think this will work?

I pay off all my balance every month - by direct debit. They get transactions charges from the retailers so they do ok on that. Why should I pay for a card? I'd be better off using my debit card instead in the future if my credit card isn't free.... (for which they will get less in transaction charges). Is that silly machine from the Barclays ads making the decisions now?
Rachel, Crumpsall
21/11/2005 at 11:15

Offensive or Inappropriate?

Newsletter Sign Up
 
Have your say Sign up to the weekly news
update

Latest stories
 

 
Credit crunch 'staycations'
 

Are you having to stay at home this summer holiday?

Yes
66%
No
34%

Poll has now ended