Expensive Credit Cards

Credit card consumers are being hit with higher and higher interest rates since the cap was placed on the default charges two years ago. In April of 2006 the Office of Fair Trading decided they needed to force the credit card companies to have a cap on their fee as more and more customers complained. This cap was set at 12 pounds. However there were consequences to these caps.

The average rate of interest for purchases rose from 14.9 percent to 16.4 percent in the last two years. The average rate on cash withdrawals has risen from 18.1 percent to 24.3 percent. There is also a fee for taking out cash at 2 to 3 percent depending on the company. This fee is different from the interest charged as it is on top of the interest. Taking cash out is the most expensive thing you can do with a credit card. There has been an actual increase on cash withdrawals by customers. About 6.2 percent of the customers are relying on cash advances and withdrawals to support their monthly budget. This means the credit card company fees are making a bad situation worse.

Most of the companies are adhering to the cap on the default charges. The changes were not made on store cards for some companies though. There was a complaint to the Office of fair trading in which Clydesdale a company was offering store cards. The OFT then had to enforce the issue to make the complaints stop and offer a fair fee to the public. Some banks have even begun to charge annual fees in order to recoup the losses they they have supposedly inflicted with the cap on the default fee.

The OFT has also demanded that the fees must be extremely clear on the agreement so that no one is confused about the charges that they will receive.

Much of the fees by the credit card companies have inflicted more of an issue with rate tarts. Rate tarts are those who are bouncing around from credit card to credit card to get the better rates. They are essentially taking the purchase and balance transfer deals offering zero percent interest so that they can afford the payments and get the balances paid off. Some of the deals last from 12 to 15 months, but then the individual changes the card. There is a fee for the balance transfer of 3 percent, but that seems worth the cost to some who are being charged 18 percent or more on their balances.

Britannia is the only credit card company at the moment who is not offering such a deal. So if you can save yourself a little money it may be worth taking the deal.

Back To Financial News May 2008

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