Annual fees on credit cards to make a comeback

Annual fees on credit cards to make a comeback

	Published : Tue, 14 Nov 2006 11:25 By : Andrew Stead Print this Story

LONDON - Many UK credit card firms are thinking of reintroducing annual fees for credit card holders in order to compensate for the loss of nearly £1 billion in annual revenue due to the new consumer protection measures introduced by the Office of Fair Trading, a study has revealed.

Richard Thompson, partner at PricewaterhouseCoopers, said that due to the Office of Fair Trading's directives limiting the penalty charge to be levied upon customers who miss out on their monthly payments to £12, coupled with increasing bad debt losses, credit card issuers are taking huge losses with average net yield on balances dropping from 6.5 percent, in June 2006 to 5 percent.

"With fierce competition and rising bad debts already hitting issuers, it's hard to see how the banks will absorb 1 billion pounds of lost revenues. We are likely to see a waterbed effect, whereby charges pushed down in one area pop up somewhere else", he said adding that around £35 could be levied as annual fees.

Meanwhile OFT added that they will be looking into the situation closely and if they find any of the credit card firms colluding with each other, then they will be forced to take action against those firms. AN OFT spokesman said, "It is OK if providers look independently at what other firms are charging and adjust their prices accordingly but if we find any evidence of collusion that will be very serious indeed".

He also said that the decision taken by OFT to limit the default fee was done with the best interest of consumers in their mind adding that they thought the margin of the fee was unfair. He also warned that if the system of annual fee is re-introduced, then credit card firms could find their customers moving away from them.

However Michelle Slate, a Moneyfacts senior researcher, thinks otherwise saying that with increasing debts, consumers have no other option but to accept it. "If you have a large amount of debt on your card, it could be quite expensive to move it as many cards have started charging balance transfer fees. They will have to swallow any fees that are coming to them. We seem to be coming full circle with annual fees potentially becoming the norm again," she said.