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5 Aug 2020

News

Annual credit cards fees – is it just a matter of time?

Michelle Slade, analyst at moneyfacts.co.uk comments:

“A report issued today by PricewaterhouseCoopers (PwC) claims that, following the OFTs cap on fees, card providers will need to reintroduce annual card fees of up to £35 or raise interest rates by up to 2% to recoup losses estimated at £1bn.

“Credit card providers have not been slow to react. In the three months following the OFT intervention, Moneyfacts researchers found 19 card provides increase interest rates by an average of 2.5%. With some unlucky customers facing rises of 5%, 6% and even as much as 12%, so it looks as if the £1bn reclaim is already well under way.

“The cumulative impact of the cost of offering 0% credit card deals, rising levels of bad debt and the penalty fee capping imposed by the OFT have left the card companies with no option but to look at how they can balance their books.

“The trend of introducing card fees has also begun. Recently Lloyds TBS launched a new card, Premier Amex with a £4.95 per month fee available for Premier Current Account customers, offering a comprehensive range of benefits.

“But more interestingly, last week Co-operative Bank announced that for new and existing customers, their Platinum Tracker and Northern Rock Base Rate Visa would both carry a £2 per month fee. So while the Co-operative received special attention, in cutting its default fees to below the OFTs recommended £12 threshold, with default fees lowered to  £11, this recent introduction of a monthly fee will prove unwelcome news for their customers.

“Although the OFT has achieved its aim of reducing default charges, it has left a legacy of rate rises, fee increases and now the possibly of annual fees. This will have a negative impact on many more customers, who now find themselves paying for the mistakes of the minority who operate their accounts outside the agreed terms.

“For annual / monthly fees to become the norm, it will only take one of the credit card heavyweights such as Barclaycard, MBNA or Capital One, for example, to take the lead and the rest of the market will be sure to follow over time.

“With the OFT committed to investigating current account fees, let’s hope it does not lose sight of the effects it has had on fees and interest rates in the credit card market. It could signal the end of free banking, so by this time next year, consumers may find themselves having to stump up for their credit card and their bank account.

 Moneyfacts only monitors credit card information applicable to new customers. We are unable to confirm if similar terms and conditions are passed on to existing customers.

NOTES TO EDITORS:

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry. 

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