Credit card firms increase interest rates to compensate for lost default fee revenue |
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Tue, 26 Sep 2006 09:45
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LONDON - Credit card companies have found a way around the ruling issued by the Office of Fair Trading, which saw them reduce their default fees to £12.
Moneyfacts, a financial data firm in UK, has said that many credit card companies have increased the interest rates to compensate for the default fees. It added that as many as 18 credit card companies were guilty of increasing the interest rates, and some of them have increased it by over 12 percent. The worst offender seems to be Barclaycard.
It has increased the interest rates for its Simplicity platinum card by over 15 percent to bring it up from 12.1 percent to 27.9 percent for all the cash withdrawals made from last month onwards. Lisa Taylor, an analyst at Moneyfacts, thinks that though some increase i the interest rates by the companies may be justified due to the increase in the base rate, such a large increase points out to some "other forces ".
"While it may be argued that the 0.25% increase to base rate in August resulted in some of these increases, with rises of up to 12.1% it is clear other forces are at play. Rising bad debts and the lost fee revenue has left many providers with no choice but to look for alternative avenues for income. And it seems, raising interest rates is a popular option", Ms. Taylor said.
Other culprits include the Co-operative Bank, with a 5 percent increase, American Express, increasing the rate by nearly 9 percent and Mint, increasing the interest rates for cash withdrawals on its standard, gold and platinum Visa and MasterCard by nearly 20 percent.
Moneyfacts said that the rising level of bad debts and lost fee revenue by virtue of the OFT ruling has left many providers with no option, but to look for alternative sources of income. And interest rates seem to be their best option, Taylor said. "For many customers this rise may go unnoticed, but should they take the time to look at the long term consequences, they could be in for a nasty surprise," she added.
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