SLY BANKS CASH IN ON DEBT BOOM
Millions forced to pay hundreds of pounds extra on their credit card bills as greedy firms hike fees
BANKS were last night accused of greedily cashing in on a debt binge by families. The cost of using the most popular credit cards has risen by hundreds of pounds since the start of the year, research shows.
Big firms including Santander, HSBC, Virgin Money and NatWest – owned by Royal Bank of Scotland – have hit shoppers by ratcheting up the rates and fees on their credit cards – even though the official Bank of England interest rate has been cut.
In the worst cases, rates have been hiked from 11.9 per cent to 18.9 per cent, and annual fees have risen by as much as £45.
As a result, shoppers will pay up to £470 more on a typical £4,000 balance over the course of the loan if they pay the minimum balance each month, according to financial comparison website Moneyfacts.
It is a blow to customers as they start their Christmas shopping amid the biggest increase in family debt in a decade.
The amount being spent on credit cards is soaring, with customers hoping to benefit from lower costs after the Bank of England slashed its base rate from 0.5 per cent to
0.25 per cent in August. But while that made borrowing cheaper for banks, big lenders failed to pass on the savings – and even increased their credit card fees in the months before the rate cut.
Experts said banks had ‘unfairly’ raised their rates to compensate for lost revenue as a result of new European Union legislation.
In December, the EU capped the sum banks can charge retailers when a customer pays for goods using a card. The fees were limited to 0.3 per cent for credit card transactions and 0.2 per cent for debit cards.
Banks initially responded by cutting air miles, cash bonuses and other rewards on their credit cards. Now many have also ramped up their interest rates and fees.
David Rodger, chief executive of the Debt Advice Founda-
‘Tipping point for vulnerable’
tion, said it was ‘unfair that consumers should suffer in the quest to recoup profit’.
He added: ‘Raising interest rates further could be the tipping point for those who are financially vulnerable.’
Rachel Springall, of Moneyfacts, said: ‘These increased charges will make a significant difference to the debt, if people only pay the minimum repayment on their credit card.’
Consumer credit grew by 6 per cent in September as people took advantage of cheap interest rates on shortterm borrowing.
The British Bankers’ Association said consumer credit was growing at its fastest rate for ten years, driven by demand loans and credit cards. But the belief that credit card rates are cheaper could be misguided after data showed not one bank has cut fees since the base rate was cut in August.
American Express’s British Airways credit card, Santander’s 123 card, Virgin Money’s credit card, Natwest’s Reward credit card, MBNA’s Miles and More card and HSBC’s Premier Card have all hiked their fees since the New Year. And while some have increased their annual card fees, others have raised their interest rates.
The annual interest rate on HSBC’s Premier Mastercard rose from 11.9 per cent to 18.9 per cent this year, according to Moneyfacts. This would cost someone another £469 on a typical £4,000 balance if they paid a minimum of £150 each month. Meanwhile, the fee on American Express’s British Airways Premium Plus card rose from £150 to £195 a year.
Moneyfacts said there were 15 increases to credit card fees since January, while the number of credit cards where the annual cost rose trebled in the second half of last year.
Richard Koch, of UK Card Association, said: ‘There was a big spike in the repricing of accounts at the end of 2015, with more banks charging higher APRs. The EU cap is the cause – it is what we told the EU would happen.’
American Express said it was the first time in eight years it had increased its fee on its British Airways card, while MBNA said it had raised the rate of only one credit card.
Virgin Money said it offered many cards with zero interest on balance transfers.