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Banks set to reintroduce charges for credit cards
Last updated at 13:52pm on 13.11.06
Credit cards: Consumers could be £35 a year out of pocket for using a credit card
Annual fees on credit cards are set to return in a move that could hit consumers' pockets by up to £35 a year, according to research released today.
A report by PricewaterhouseCoopers (PwC) predicts that banks will reintroduce yearly fees to recoup money lost as a result of enforced caps to penalty charges.
According to analysts at PwC, consumer protection rules could cost lenders £1 billion a year.
And instead of taking the hit themselves, most issuers are likely to recoup their losses through other means.
Earlier this year, the Office of Fair Trading restricted the amount banks could charge in penalty fees for defaulting credit card repayments to a maximum of £12.
And an ongoing investigation into credit card interchange fees - the amount retailers pay on credit card transactions - and payment protection insurance could add to the pressure on issuers, PwC said.
Richard Thompson, partner at PwC, said: "With fierce competition and rising bad debts already hitting issuers, it is hard to see how the banks will absorb £1 billion of lost revenues.
"We are likely to see a 'waterbed effect', whereby charges pushed down in one area pop up somewhere else."
He added: "To put it in perspective, card issuers would have to levy annual fees costing the average credit card user £35 a year to recoup the potential £1 billion loss.
"If lenders tried to recoup this through interest rates alone, we would see APRs increase by two percentage points on average."
PwC found that rates were already on the rise, with 19 financial institutions upping their rates over the summer months.
And it could not be long before issuers return to annual charges as the norm, something that has not been the case since the 1990s.
Commenting on the report, Robert Kenley, head of credit cards at price comparison website Moneysupermarket.com, said the move could cost card holders around £28 a year, when the benefit of having 56 days interest free credit is factored in.
He added: "Taxing people for having a credit card in the first place would be counter productive."
Reader views (5)
Here's a sample of the latest views published.
I would willingly give up my Visa card, but how do I book airline tickets or buy anything online? Are we really caught in a trap where to live a normal life, we absolutely must have at least one credit card?
If so, shouldn't the retail companies instigate a way of using a regular Bank Debit Card?
- Simon Cooper, London, England
Use the Card and one must pay for doing so, there is nothing for nothing in this World, we should all know that. Most convenient way of all for paying for goods and services there is. Wipe it out at the end of the month you silly people out there.
- James Small, Slough England
Greed and nothing but utter greed from the Banks. Expected nothing less from them. I agree with other readers, I would cut mine up. Their loss not mine, them being so hard up on charging us porr Brits (as usual) the highest charges in the world (Along with everything else I might add). Billions of pounds profits made but still not ENOUGH.
- Patrick, Walton on the Hill Surrey
I would immediately cut up the card of any bank that tried to levy such charges. It will be the same as the introduction of ATM charges a couple of years back, The banks, being the thieving chancers that they are, will have a good go at introducing the charges only to withdraw them equally sharpish when their cardholders vote with their feet.
Pathetic, really.
- Rory, Driffield, E Yorks
Don't borrow from these people, pay on time and ditch the fee chargers, none of them add any value! Market competition will soon sort out the rip off merchants!
- James Ritchie, London, UK
