Annual fees on cards as 'rate tarts' hit credit firms

Published on Monday 14 November 2005 11:58

CONSUMERS could face annual fees on their credit cards as issuers struggle to make profits in the face of so-called "rate tarts" and bad debtors, a report today warned.

Margins at credit card companies have been hit by a combination of rising credit losses, increased regulation and people constantly shifting outstanding balances between cards to make the most of introductory offers, according to Pricewaterhouse Coopers.

The group estimated these card movers have cost the industry around 600 million in lost revenue on balance transfers, despite many providers having introduced two per cent balance transfer fees.

The amount of unsecured debt consumers owed, including credit cards and loans, had risen by 8.4 per cent during the 12 months to the end of June to about 189 billion, according to the group.

It expects this to increase further to around 200bn by June next year.

The Office of Fair Trading has told Visa and MasterCard the "interchange" fees they charge for processing transactions are too high. Credit card penalty charges and payment protection insurance, which is supposed to safeguard the borrower's repayments in the event of illness or redundancy, are also being examined by competition watchdogs.

At the same time PwC estimated that revenue per card - after defaults but before fees - is likely to have halved because of competitive pressures and increasing bad debts. It predicted that, as a result, companies were likely to reintroduce annual fees on cards, similar to those in the United States, as they tried to claw back some money.

Richard Thompson, a partner at PwC, said: "Credit card providers are coming under increasing pressure from fierce competition and mounting regulatory scrutiny. The industry is being subject to a number of separate inquiries by regulatory bodies, looking at virtually every source of income."