UK Credit Card Companies Start Credit Crackdown
Until very recently credit card providers in the UK loved British credit card users who failed to make repayment of their entire outstanding balance at the end of each statement period. And why not, these customers were the source of huge profits for UK credit card issuers. However, with recently announced bad debt provisions by UK credit card providers being among the largest ever, and having recently been subjected to a fine-comb review from the Office of Fair Trading (OFT), a number of leading UK credit card providers are starting to fight back.
The first casualty in this new battle? UK credit card customers who are finding it increasingly difficult to make repayments on their credit cards.
Yesterday Britain’s largest bank, HSBC, announced that it would be writing to all of its customers informing them that the bank had now engaged a new credit policy with regard to its overdrafts and that period reviews of these would take place to see if a personal loan might not be more appropriate.
This follows the recent announcement by Europe’s leading credit card issuer, MBNA, that it could now be possible for you to have a credit card transaction declined even if you have available credit on your credit card to meet the transaction value. MBNA’s reason for doing this? Because they say they should have the right to decline a transaction if they believe you do not have the means to cover the repayment of your credit card bill! That might be so, but surely this would need to be done as part of a review of your credit card limit, not an instant decision when you are trying to conduct a transaction at a time when you genuinely believe you have the credit limit to cover the transaction value. Potentially very embarrassing indeed.
Likewise, around the same time, Barclays announced that its credit card customers would now be subject to periodic reviews of their credit card limit and that Barclays now reserves the right to lower a customer’s credit card limit at any time. A little harsh perhaps, but far better than the embarrassment of having a transaction declined in a shop!
Collectively then it appears that the leading UK credit card companies are fighting back against recent attacks on them. None less so than that by the OFT, which looks like it will involve UK credit card companies having to lower their fees and interest rates in the very near future. This may also involve some for of rebate to some UK credit card customers who have been excessively charged fees and interest. And herein lies the crux of the issue for many watchers of the UK credit card industry, who do not see these moves by the leading UK credit card companies as a helpful crack-down on delinquent UK credit card companies, by offering cheaper sources of borrowing, such as a personal loan, but more like a chance to cross-sell other products in their stable which are not the subject of such a careful, watchful eye at the moment.
Richard Smith
19th September 2006
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