US bank steps up lending war

The credit card war in the UK escalated yesterday as People's Bank, based in Connecticut in the US, launched a new card offering a 14.4 annual percentage rate.

The People's Bank card, which undercuts traditional high-street issuers by about 7 percentage points, has no annual fee and a 56-day interest- free period.

People's Bank said yesterday that a typical Barclaycard shopper, paying 22.3 per cent APR on a average balance of pounds 1,500 would save about pounds 100 a year by switching cards. Access users, now paying 23.4 per cent APR, would save at least pounds 15 more.

Ronald T Urquhart, the UK managing director of People's Bank, said: "For too long now, credit card issuers in the UK have been managing credit to their own advantage, to the extent that some are still charging APRs almost four times higher than the bank base rate.

"The average credit card APR rate is 21.2 per cent, which means British shoppers are paying pounds 657m too much interest each year. [Our] card cuts through this complacency."

People's Bank aims to undercut traditional issuers by offering a no- frills service from its UK headquarters in Northampton. The bank, founded in 1842, is among the top 30 credit-card issuers in the US.

In the past few months, aggressive newcomers have grabbed a share of the market by offering slightly more competitive rates.

Royal Bank of Scotland has launched the Advanta card, offering 15.6 per cent APR, linked to base rates. The RBS MasterCard charges 14.5 per cent APR.

Robert Fleming, which has long offered two of the most competitive cards, charges 14 per cent and 11.5 per cent APR respectively, the latter being linked to bank base rates. Despite its rate, the Robert Fleming card only has 200,000 users compared to 9 million Barclaycard customers.

Mark Warde-Norbury, banking services manager at Robert Fleming, said: "There is an enormous amount of inertia in the market. There also appears to be a cartel, with the high street banks operating on very large margins and making substantial profits. Until one of the major issuers cracks and cuts its rates, the war will only be at the margins."

A Barclaycard spokeswoman said the popularity of its card lay in the added benefits, such as loyalty bonuses ranging from cheap holidays to toasters.

"We are successful because we were first in the market .... Our customers stay with us because they want more from us than a cheap headline rate, which then goes up through a range of hidden charges, including shorter credit times or additional bills when people don't pay them off on time.

"In many cases, people find that with other users who come from outside the UK and have less experience of this market, the credit limits they receive are lower."

She added that 50 per cent of Barclaycard users paid off their entire debts each month.

The rate card

Company APR %

Robert Fleming/S&P 11.50*

Robert Fleming/S&P 14.00

People's Bank 14.40

Royal Bank of Scotland 14.50*

Hamilton Direct 14.50*

UNICEF 14.90

RBS Advanta 15.60

Frizzell Bank 16.10

Barclaycard 22.30

NatWest Access 22.90

* No interest-free period even if account is cleared in full each month

Source: Moneyfacts