'Rate tarts' cost credit industry £80m a month, finds report

Published on Tuesday 12 April 2005 11:51

CONSUMERS who switch credit cards to take advantage of interest free deals, so-called "rate tarts", are costing the industry more than £80 million a month, it was claimed today.

The report noted that some credit card providers could no longer afford to offer such deals and would have to start introducing charges for items such as balance transfers or increase rates. The report’s author, Professor Merlin Stone of Bristol Business School, said: "Economically, some providers cannot sustain their current offers of zero per cent interest which means they may have to remove them or start introducing new charges to help reduce their losses.

"Research shows that in 2003, none of the cards offering zero per cent APR interest on balance transfers applied charges for transferring balances compared to around 11 per cent that do today."

The report, commissioned by Capital One credit card, suggested that many consumers were suffering "switch fatigue", fuelling demand for flat-rate credit cards.

Around 4.2 million people have transferred credit or store card balances to other cards with the intention of clearing them before the low introductory teaser rate expires, yet just 61 per cent claimed that they managed to do this.

Of those transferring in the hope of clearing balances before their teaser rates expired, one in three could only clear some of them.

Prof Stone added: "The most effective way to stand out in this market is through low interest rates."