Banking giant blocks 160,000 customers' credit cards in crackdown on out-of-control debts

They will receive letters in the next few days warning them their Egg credit cards will stop working in 35 days' time.

It is the first time a credit card company has resorted to such a drastic move to curb over-spending, but others are expected to follow their lead as the global credit crunch tightens its squeeze on the beleaguered banking industry.

If they do follow suit, it could lead to a crisis on the high street, because credit card spending has fuelled the "spend, not save" shopping culture.

Many adults rely on their credit cards to pay for a lifestyle that they cannot afford.

Yesterday Egg said its dramatic move affects 7 per cent of its two million credit card customers.

They are being targeted because they have a "higher than acceptable risk profile", said the company.

This typically means they are spending over their credit limit or failing to make even minimum repayments every month.

Egg's move marks a dramatic turnaround from recent years when firms were dishing out easy credit to almost anyone.

There are signs of other firms clamping down on credit card customers who they fear are spending money they will never repay.

HSBC said yesterday it is now turning away just under half of all customers who apply for a credit card.

They used to accept around two in three.

Barclaycard said it is blocking some customers' ability to withdraw cash on their credit card because this is a classic sign of financial distress.

One in five has had his or her credit card limit slashed since August, according to a poll on the Daily Mail's financial website thisismoney.co.uk.

The number who have missed at least one payment on their credit card has soared, according to a survey by the comparison site MoneyExpert.com.

In June, around 4.1million had missed a payment. By December, it had jumped to 5.1million.

A spokesman for the trade body Association of Payment Clearing Services said: "A definite mood has been sweeping the industry.

"Some customers will be quite put out when they are told to stop spending or have their credit limit cut.

"But for others, it will be just the jolt they need."

Andrew Hagger, from the financial information firm Moneyfacts, said: "There is a growing number of people relying on credit to manage their day-to-day living.

"Losing that line of credit will undoubtedly bring matters to a head for many people earlier than expected."

Egg's move comes as huge mortgage repayments, soaring energy and food bills and below-inflation pay rises pile pressure on to hard-up families.

Yesterday Egg said it started sending out letters to customers on Thursday.

They will be told their cards will stop working at the end of the notice period, although they will be able to continue paying off the money owed.

A spokesman insisted the move is not linked to the credit crunch but follows a "risk review" of its customers after being bought by the investment bank Citigroup last year.