New charges for credit card users
Updated on 07 November 2007
Credit card providers are increasing rates and inventing new charges to recoup revenue lost as a result of a cap on default payment charges, a report said.
In August last year the Office of Fair Trading said credit card companies must cap the fees they charged for late payments, payments that bounced and exceeding a credit limit at £12.
As a result the average fee for a late payment has fallen from £22.21 in June 2006 to £11.81 this month, according to financial research group Defaqto. At the same time the penalty charge for exceeding a credit limit is now £11.73 on average, down from £22.21 last year, while fees for a bounced payment have dropped to £11.39 from £20.10.
But the group warned that many providers had sought to make up this lost income by raising other charges or even inventing new ones.
It said some credit cards now charged people low usage fees or penalty fees for failing to notify the provider if they changed their address, while others even charged customers if they were in credit.
At the same time the average fee charged to people transferring a balance from a different card has soared by nearly 57% from an average of 1.64% in June last year to 2.57% now.
The interest charged on new purchases and transferred balances has risen by just under 7% to average 1.27% and 1.24% a month respectively. Interest charged on cash advances has increased by 22% to 1.82% a month, while the average cash advance withdrawal fee has increased from 2.14% to 2.50%.
The group said that although some of the increase in interest rates could be explained by the rise in the Bank of England base rate, which has increased from 4.5% to 5.75% during the period, other charges were not directly influenced by the cost of borrowing.
Author of the report David Black said: "Credit card providers have lost a great deal of highly profitable revenue because of the charges cap and will inevitably seek ways to replace their lost income.
"This is even more imperative for the largest institutions because of the pressure on them arising from the knock-on effects of the sub-prime lending crisis... for these reasons, I believe that credit cards will become increasingly expensive to use over the medium term."
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