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Credit card companies were on a collision course with Gordon Brown last night after they rejected calls to reduce interest rates, some as high as 69%, after last week's shock cut in the Bank of England's base rate.
In a clear signal that the prime minister is determined to make credit cards the next battleground in the financial crisis, he used his monthly press conference yesterday to call for a "new, responsible approach" to lending.
Average interest charged on the approximately 72m credit cards in circulation has risen to 17.6% from 16.8% a year ago, according to data analysts Defaqto, despite the Bank's base rate almost halving from 5.75% to 3% over the same period.
Store card rates have risen faster, up by 1% over the past six months with the most expensive now charging shoppers more than 30%.
Brown said: "I think we have got to bring the credit card industry in to talk to them to join with us in establishing clear principles to apply to the costs people face on their existing debts."
Downing Street said last night credit card companies were behaving "irresponsibly". Lord Mandelson, the business secretary, would meet representatives of the industry to discuss their procedures and potentially draw up a "guide on behaviour", it said.
But yesterday PayPal increased the rate on its card from 12.9% to 16.9%, and other leading providers said their rates were likely to remain on hold.
Barclaycard and Nationwide said they would not cut rates. Nationwide said: "We have no immediate plans to change our credit card rates but our current range remains competitive, with a number of benefits including free foreign usage.
"We monitor the market to ensure we continue to remain competitive and, as a responsible lender, support any initiative that seeks to improve customer understanding of this market."
Amid rising household bills, concern is growing that people are losing their homes as card firms claw back relatively small sums, often after just one or two missed payments.
Citizens Advice said 20% of all new debt inquiries in 2007-08 related to credit, store and charge card debts. "Bureaux in England and Wales are dealing with nearly 1,400 new credit, store and charge card debts every working day," it added.
The Consumer Credit Counselling Service said yesterday it had witnessed a surge in "charging orders" by card firms which may ultimately be used to seize a card owner's home.
Apacs, which represents the credit card industry, said the rates charged bore little relation to the Bank of England's base rate. Sandra Quinn, its spokeswoman, said: "It's fair to say that credit cards' interest rates never move up or down as a result of base rate changes. And right now they are not at an historical high in relation to base rates."
In the US, credit card firms have been trimming charges as the Federal Reserve has dropped its rate. The average US credit card charges interest at 9%-11%, compared with Britain's 17.6%, even though there is only a two-point difference between the two countries' base lending rate.
Defaqto blamed government regulation, such as the Office of Fair Trading's 2006 decision to impose a £12 cap on penalty fees, and falling profits on payment protection insurance for increasing the cost of credit.
But Apacs said that average balances on credit cards had yet to show any increase despite pressure on household budgets. "The average balance on a credit card is £1,856, which is lower than it has been for the previous two years," it said.
Britain's 30.8 million credit card customers have an average of 2.3 cards each, down from 2.4 in 2003-04, which Apacs said was due to tighter controls over lending, which means that over-indebted customers were not being offered more cards.
A survey yesterday from creditexpert.co.uk found that nearly one in five adults would be putting their Christmas purchases on their credit cards, with Londoners and those in the south-east the most likely to put their purchases on plastic.
The Department for Business, Enterprise and Regulatory Reform said the government would be calling on the credit card industry to bring forward a "statement of best practice" about how providers would apply fair principles to existing debt, continue to make credit available in a responsible manner, and give support to families in difficulty.
"We know lenders have made progress in this area in recent times. The Banking Code, for example, contains a number of provisions on interest rate changes and how these should be communicated to consumers," it said.
"However, we are still encountering pockets of bad practice - eg, where lenders increase their rates by 10% overnight - and we are concerned about the overall impact of the economic downturn on this sector."
How they compare
6.8% Barclaycard Simplicity Visa
9.9% Co-op Bank Platinum Fixed Rate Visa
15.9% Bank of Scotland Mastercard
15.9% Lloyds Bank Airmiles Duo
16.9% NatWest Classic
31.5% MBNA Travel Amex
34.9% Capital One Classic Visa
39.9% Vanquis Bank
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