The war over unfair charges may have backfired on card-holders, according to the latest research on credit card costs, with credit card providers hitting back at charge capping with a 15 per cent hike in other charges.
A report by Moneyfacts has found that since April 2006, when the Office of Fair Trading found that default charges on credit cards were too high, lenders have significantly increased other rates and charges in an attempt to recoup the lost revenue.
Many providers were forced to cut penalty fees by as much as half when they were capped at £12, and the independent research company found that consumers are now forced to pay significantly more in rates on purchases, transfer fees and cash advances.
The average purchase rate on a credit card has jumped from 14.9 per cent to 16.4 per cent since the move. The average interest rate for cash transactions has seen a marked increase from 18.1 per cent to 24.3 per cent over the same period. Card providers have also increased their cash advance charges, charging an average of 3 per cent, up from 2 per cent in 2006. Taking cash out on credit cards, traditionally one of the most expensive ways of borrowing, has increased by an average of 6.2 per cent.
"Previously, whereas only a select number of customers were being penalised, now all borrowers are paying the price," said Michelle Slade, an analyst for Moneyfacts. "With many households struggling with increasing financial pressures, those who only repay the minimum will be hardest hit. A credit card holder with a balance of £5,000 repaying just 2.5 per cent per month will end up paying an additional £755 in interest due to the 1.5 per cent increase in purchase rates."
Unsurprisingly, credit card companies dismiss the findings, denying the accusation that the industry-wide hikes are a deliberate attempt to recoup the revenue lost due to the OFT decision. Virgin Money claims that any increases in charges and interest rates are based solely on their own increasing costs. "We would refute the Moneyfacts findings," said Jason Wyer-Smith, a spokesman for the provider, whose credit card balance transfer fee of 2.98 per cent has been in place for two years. "We have not made a conscious decision to make up the difference in charges elsewhere. If our charges have gone up it has simply been a case of managing our books because of charges on lending."Reuse content