Charges spell end of the plastic party

For years, the sun has shone on credit card holders. With providers battling for market share, consumers have benefited from lengthy interest-free deals, cashback and competitive annual percentage rates (APRs).

But that could be about to change. According to Precious Plastic 2007, a new report from accountants Pricewaterhouse-Coopers (PwC), we could soon all pay an annual card fee as lenders struggle to recoup lost income.

In recent months, the industry has come under unprecedented scrutiny from the Office of Fair Trading (OFT), the Competition Commission and the Financial Services Authority, the report says. September's decision by the OFT to cap penalty charges on missed payments at £12 is already affecting margins.

The report adds that the continuing investigations into payment-protection insurance and credit card interchange fees - the charge paid by retailers on card transactions - may add to the pressure.

PwC predicts that the combined effect of these rulings and probes could be losses to the industry of £1bn. This, it says, is likely to lead to a "water- bed effect" where charges pushed down in one area pop up somewhere else.

According to the report, card issuers would have to levy annual fees costing the average user £35 a year - or raise annual percentage rates (APRs) by two percentage points on average - to offset this lost revenue. "Ultimately, regulation could hasten the return of annual charges as the norm," warns PwC spokes- man Richard Thompson.

Karen Darby from price- comparison service Simply- Switch warns that it is "only a matter of time" before providers try to recoup their losses by charging just for using a card.

In fact, the trend is well under way.

Lloyds TSB recently launched its Premier Amex card - offering a range of benefits for Premier current account customers - with a £4.95 monthly fee.

And earlier this month, the Co-operative Bank announced that its Platinum Base Rate Tracker and Northern Rock Base Rate Visa cards would carry a £2 monthly fee for both new and existing customers.

Michelle Slade at financial analyst Moneyfacts, says card firms have reacted in other ways, too. "In the three months since the OFT intervention, we found 19 providers have increased interest rates by an average of 2.5 percentage points.

"The OFT ruling has left a legacy of rate rises, fee increases and now the possibility of annual fees," adds Ms Slade.