Interest rates charged on credit cards now stand at 19.1 per cent, the highest level for 13 years. It is a signal that the banks will do whatever they can to recover the revenues they have lost through the ban on the sale of payment protection insurance and tighter rules on interest charges.
Since the start of the year rates on 18 credit cards have been increased compared with just four rising in price in the same period in 2010, according to analysis by Moneyfacts. The financial information service said card companies have increased rates by between 0.6 per cent and 2 per cent.
Banks have been forced to claw back reduced returns from their credit card businesses since the introduction of fairer payment terms at the beginning of the year. Since January credit cards have been made to have a "positive order of payments", which effectively means cardholders' most expensive debt is paid off first.
The change was demanded by the Office of Fair Trading after it became clear that potentially millions of borrowers had ended up being charged interest on 0 per cent deals. That was because when they used their credit card, it created a new debt at a much higher rate. When they subsequently made a payment, the cash was used to reduce the 0 per cent balance rather than the higher-rate one.
Scrapping the practice has meant a much fairer and clearer deal for card users, but has left banks facing smaller profits. They have clearly decided to grab the cash back by gradually raising the interest rates they charge on outstanding balances on credit cards. Rates have drift upwards since the PPI ban even though the base rate has now been kept on hold at 0.5 per cent for 27 months.
"There has been a sharp increase in the number of providers raising the interest rates charged on their credit cards," Michelle Slade, a spokeswoman for Moneyfacts pointed out. Most of the biggest plastic card companies are guilty of raising rates, including Barclaycard, Halifax (owned by the Lloyds Banking Group), Royal Bank of Scotland and Santander.
But others are likely to follow, bringing more woe for borrowers, according to Ms Slade . "It is unlikely we have seen the last of the increases and I expect more providers to follow suit."Reuse content