Are The Glory Days Of UK Credit Cards Numbered?

Recent pressure from the UK’s Office of Fair Trading (OFT) has seen a number of UK credit card provides being rebuked for both the high interest rates they charge and for the excessive hidden fees they appear to be charging UK credit cardholders. In short, sharp and plain language the OFT has told UK credit card providers that the time has come to “shape-up or ship-out”. As a UK credit cardholder, you may well be thinking that this bold move is well overdue. However, unhappy with the tone the OFT has taken with them, a number of leading UK credit card providers appear to be taking the OFT at its word and are now considering seriously curtailing their UK credit card services. But, how will this effect you?

Bringing the UK debit card into play

Essentially, most of the UK’s major credit card providers are also high street banks. What’s more, a majority of the credit card issuer’s cardholders also have bank accounts with the credit card issuer. Currently, unlike many European and American banks, UK banks do not charge their customers to operate a current account. Included within the provision of services provided by UK banks to their current account holders is free use of a UK debit card, provided you have the funds to cover the transaction. All of this may be straightforward.

However, in response to what bank UK credit card issuers’ see as the OFT’s heavy handed approach to their fee and interest rate structure, a number of leading UK banks (who also happen to be leading credit card providers) are threatening to charge their customers for operating a current account – including for using the debit card on the account. So, while it may look very much like the OFT have put one over the main UK credit card issuers, when you take a closer look the OFT’s “win” doesn’t look quite such a glorious victory.

What does this all mean for me?

A combination of (1) falling credit card use; (2) falling credit card debt; (3) increased debit card use; and (4) the sabre rattling of the OFT have, possibly, made UK credit card issuers realise that glory days of the UK credit card industry are coming to a close. Naturally reluctant, however, to upset their shareholders with any falling profits that would follow such a previously inconceivable concept, it appears the UK’s leading banks are now going to be saying that to stay in-line and competitive with the rest of the World, they need to start charging their customers for using their current account services. This may not seem too dramatic, but keep in mind the following:

• 40% of UK credit cardholders repay their outstanding balance in full each month and likely pay not fees or interest
• 100% of UK current account holders face the prospect of having to pay fees on their account, regardless of whether or not they had a credit card in the first place

and now you may be starting to agree that the UK’s major credit card issuers know that the glory days of UK credit cards are numbered.

Richard Smith
23rd July 2006

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