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Consumers are being hit by an ever-mounting wave of credit card charges and changes to terms and conditions, as banks leave no avenue of raising revenue unexplored. The move comes as the credit cruch bites and lenders desperately attempt to recoup lost profits in the wake of the Office of Fair Trading's ruling on penalty fees in July 2006.
In the last few months alone borrowers have seen the wholesale closing of accounts, annual fees, a reduction of credit limits and a sharp increase in interest rates and fees such as overseas and cash machine charges.
New research by price comparison service uSwitch shows that last year over 2.5 million credit card accounts were hit with an annual or monthly fee, had their credit limits reduced or were closed down altogether. Of these:
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1.6 million have had their credit limit reduced
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1.3 million have either been hit with an annual fee or had their account closed down altogether
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One in four (25%) were told this was because of poor credit ratings, while for 16% it was because their account wasn't being used regularly. 27% were not given a reason at all
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51% of those affected were using their card regularly and making at least minimum repayments, and 20% were using their card regularly and paying their bill in full every month. Just 16% exceeded their credit limit in the last year or missed more than one monthly repayment#
With 71.8 million credit cards in circulation there is a need for providers to take reasonable action to protect consumers from becoming over-indebted and to communicate their decisions in a transparent manner. However, just 16% of people caught up in this credit card ‘shake-up' missed more than one monthly repayment or exceeded their credit limit in the last 12 months - which would seem a good justification for providers to take appropriate action.
Simeon Linstead, head of personal fnance at uSwitch, says: "We're not against credit cards providers curbing consumers' spending if their debts are genuinely getting out of hand. However, resorting to account closures, reducing credit limits and implementing annual or monthly fees without providing over 1 in 4 people with a reason for doing so is not good for consumer confidence or financial planning. Credit card companies who are taking action to close down or make changes to customers' accounts must be completely open about how and why they have selected those customers."
Simeon Linstead adds: "If your credit card provider wants to make changes to your account that you don't like, you should challenge their decision. If you are still not happy with the outcome or don't feel you've been treated fairly, take your complaint to the Financial Ombudsman Service (FOS). While your complaint is being dealt with, you can still take your business elsewhere and search for a better credit card deal that suits your needs - there really is no need to pay an annual fee for your credit card. Finally, having your credit card account closed will not impact your credit rating as long as you don't miss any repayments."
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