Tuesday, September 26, 2006

Well, there's a surprise!
Many credit card firms have increased their interest rates in the last three months to offset enforced cuts in their default fees, a report shows.

American Express has raised the rate on one card by 6%, while Barclaycard's Simplicity platinum card customers have seen the rate they have to pay for cash withdrawals go up from 12.1% to 27.9%.

"While it may be argued that the 0.25% increase to base rate in August resulted in some of these increases, with rises of up to 12.1% it is clear other forces are at play," said Moneyfact's Lisa Taylor.

"Rising bad debts and the lost fee revenue has left many providers with no choice but to look for alternative avenues for income.

"And it seems, raising interest rates is a popular option."

Well, it would seem to be the only option: at one point, it was only the defaulters—those who, as it were, did not stick to the contract—who were punished: now it seems that everyone is paying more in order to make up for the lost fees from the penalty charges.


James Higham said...

There are two sides to this, DK. Often they do the three card trick on you and you find yourself suddenly criminalized without realizing it. For example, there is the gap between payment and due date [time to clear the bank etc.] It's a huge money spinner for the banks - some estimates put it at 40% of total card revenue.

Anonymous said...

Judging by the huge increases in rates being implemented to recover the lost income from them, it seems that the penalties were indeed a big money spinner. DK's point that the interest rate rises are hidden subsidies of late payers by prompt payers is surely a good one though? Of course - even if the banks had predicted it to them before the late payment charges were prohibited (as I would guess they did) - the Office of Fair Trading would have still proceeded, encouraged no doubt by the Treasury. The day the feckless and reckless rein in their debt-fuelled spending, Gordon's "economic miracle" (always as fake as Blair's smile) is over. And isn't Socialism about taking money from the honest and hard-working and giving it to the feckless and reckless?

I can't sympathise with the banks. The profit they have made in recent years from the f&r is shocking. But this report shows there is no need to sympathise with them. All economic costs eventually find their way to the consumer. When government intervenes to make things fairer, it is impossible to make the costs fall on corporations which are no more than tanks and pipes full of other people's money. That's, by the way, why corporation tax is just a concealed tax on shareholders, consumers or both.

Shareholders and/or customers must pay for every "fairness" imposed from outside. At this moment, the customers are paying. I hope they now use their all-powerful voting papers (the one's with the Queen's head on them) wisely. A bank which chose to screen applicants to transfer credit card accounts carefully, so as to take customers who will pay lower rates on time and leave the late payers to the ones charging the higher rates might do some good business. Banks under competitive pressure may also begin to cancel the credit cards of persistent late payers so as to offer lower rates. This will be an interesting story to follow.

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