Credit card providers raise charges rather than rates

by Gill Montia

Story link: Credit card providers raise charges rather than rates

Moneyfacts.co.uk has reported a marked increase in the charges levied by credit card providers since April of this year.

According to the firm’s latest research, 19 credit card providers have raised purchase rates, five have imposed higher balance transfer fees and eight have hiked their charges for cash withdrawals, in the past four months.

The price comparison website asserts that while credit card companies have been reluctant to increase interest rates that are sufficiently competitive to attract new business, charges are rising because these are frequently not taken into account by consumers.

The website gives as an example Clydesdale Bank and Yorkshire Bank, which have reduced their minimum monthly repayment from 3% (min £5) to 2.5% (min £5).

The decrease means that someone with a balance of £5,000 on their card (charging 15.9% APR) would pay an additional £1,279.80 on the debt, which would take 25 years and 2 months to clear on the minimum repayment schedule.

Moneyfacts suggest that a reduced minimum repayment may come as a relief to consumers in financial difficulties but it has a negative effect in the long-term.

Meanwhile, Nectar Amex card from American Express has put its purchase rate up by 3%, meaning that a customer with £3,000 on the card repaying the minimum monthly amount now has to pay an extra £1,073.

It can be argued that lenders are justified in raising addition income from credit cards because the credit crisis has led to an increase in the risk and cost control elements of the business.

However, Moneyfacts is suspicious that some companies are using the credit crunch to increase profit.