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Credit card providers have "lost touch with reality", according to a leading consumer watchdog that today accused the industry of pushing up charges and interest rates at a time when the Bank of England had cut the cost of borrowing.
Which?, formerly the Consumers Association, said credit card firms were profiteering after a series of hikes in interest rates and charges in the last year. The jump in interest rates on cards of three or four percentage points in some cases were imposed on consumers despite a cut in base rates during the last six months from 5.5% to 0.5%.
The watchdog said it found 28 providers of widely held credit cards had either increased interest rates or other charges in the last year. Many had also reduced the number of days to pay balances or reduced the number of interest-free days, it said.
While the average rise across the industry over the last year was 0.5%, the biggest players pushed through the biggest rises, said Which?.
NatWest and Royal Bank of Scotland increased rates by four percentage points to 16.9%, while Abbey and the Post Office forced up rates by three percentage points to 18.9% and 19.9% respectively.
Investment bank Credit Suisse reported earlier this month that banks and credit card companies had taken advantage of falling base rates to increase operating margins.
Credit card companies claim interest rate levels reflect the growing burden of bad debts from consumers who are expected to default on loans over the next year. They argue that the credit crunch has hit many consumers hard and default rates are expected to continue rising, hitting profit margins.
However, Which? said it was unfair to punish existing customers for poor lending decisions in the past. It said many customers were living on the edge of financial insolvency and vulnerable to tougher lending conditions and higher charges.
Martyn Hocking, editor, Which? Money, said: "At a time when we're all feeling the pinch, it's hugely disappointing that credit card companies are choosing to put the squeeze on borrowers more than ever. With interest rates so low, it is time for credit card providers to enter the real world. They need to make credit cheaper and their charges more transparent and fair, rather than making it harder than ever for people to make ends meet and pay back their debts."
A report by the Consumer Credit Counselling Service showed that people in financial difficulties were finding it harder to repay their debts. Debt charity the Resolution Foundation found that the situation for low earners had deteriorated over the last year. It reported that 78% of low earners were in bad financial health prior to the recession and their situation was likely to be worsening.
Commenting on the Which? survey, Liberal Democrat Treasury spokesperson, Lord Oakeshott said: "The new bosses at RBS are fast learners in the Fred Goodwin school of greed. These taxpayer-owned banks must stop spanking their credit card customers. Paying these extortionate interest rates in the high teens destroys your financial health just like 50 cigarettes a day or 50 drinks a week."
He added: "The FSA should warn these banks and all financial advisors not to sell any pension or savings product to anyone paying these sky-high interest rates. It's blatant misselling if you get people borrowing at 17% to invest for an expected return of only 7%."
http://www.guardian.co.uk/business/2...est-rate-rises
Which?, formerly the Consumers Association, said credit card firms were profiteering after a series of hikes in interest rates and charges in the last year. The jump in interest rates on cards of three or four percentage points in some cases were imposed on consumers despite a cut in base rates during the last six months from 5.5% to 0.5%.
The watchdog said it found 28 providers of widely held credit cards had either increased interest rates or other charges in the last year. Many had also reduced the number of days to pay balances or reduced the number of interest-free days, it said.
While the average rise across the industry over the last year was 0.5%, the biggest players pushed through the biggest rises, said Which?.
NatWest and Royal Bank of Scotland increased rates by four percentage points to 16.9%, while Abbey and the Post Office forced up rates by three percentage points to 18.9% and 19.9% respectively.
Investment bank Credit Suisse reported earlier this month that banks and credit card companies had taken advantage of falling base rates to increase operating margins.
Credit card companies claim interest rate levels reflect the growing burden of bad debts from consumers who are expected to default on loans over the next year. They argue that the credit crunch has hit many consumers hard and default rates are expected to continue rising, hitting profit margins.
However, Which? said it was unfair to punish existing customers for poor lending decisions in the past. It said many customers were living on the edge of financial insolvency and vulnerable to tougher lending conditions and higher charges.
Martyn Hocking, editor, Which? Money, said: "At a time when we're all feeling the pinch, it's hugely disappointing that credit card companies are choosing to put the squeeze on borrowers more than ever. With interest rates so low, it is time for credit card providers to enter the real world. They need to make credit cheaper and their charges more transparent and fair, rather than making it harder than ever for people to make ends meet and pay back their debts."
A report by the Consumer Credit Counselling Service showed that people in financial difficulties were finding it harder to repay their debts. Debt charity the Resolution Foundation found that the situation for low earners had deteriorated over the last year. It reported that 78% of low earners were in bad financial health prior to the recession and their situation was likely to be worsening.
Commenting on the Which? survey, Liberal Democrat Treasury spokesperson, Lord Oakeshott said: "The new bosses at RBS are fast learners in the Fred Goodwin school of greed. These taxpayer-owned banks must stop spanking their credit card customers. Paying these extortionate interest rates in the high teens destroys your financial health just like 50 cigarettes a day or 50 drinks a week."
He added: "The FSA should warn these banks and all financial advisors not to sell any pension or savings product to anyone paying these sky-high interest rates. It's blatant misselling if you get people borrowing at 17% to invest for an expected return of only 7%."
http://www.guardian.co.uk/business/2...est-rate-rises
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