UK Credit Card Issuers Look Set To Re-Introduce Annual Fees

As if the recent rise in base rate announced by the Bank of England last week wasn’t enough, it now looks as if UK credit card issuers are in the hunt to try and recoup the approximate £1 billion in annual revenue they recently lost as a result of tightening rules on late payment fees following the investigation by the Office of Fair Trading.

According to a leading report recently published, the two most likely ways UK credit card issuers are looking to recoup these losses is by introducing higher interest rates and, more likely, the re-introduction of annual fees that have not been seen in the UK credit card industry for almost a decade. Richard Thompson, partner at PricewaterhouseCoopers puts this down to the “waterbed effect, whereby charges pushed down in one area pop up somewhere else”. Currently, it is likely that UK credit card issuers are facing the choice of having to re-introduce annual fees of around £15 per annum per credit card issued, or increase interest rates by 2 percentage points, if they’re going to recoup this lost revenue.

For some, however, the news may be too late, as it appears that a number of UK credit card issuers have already taken a pre-emptive strike and already imposed annual membership fees on their cardholders. With the current competition among UK credit card companies, it cannot be too long before the rest of the pack follow, and given that interest rate fees usually lead to headline deals online for ‘best’ credit card, it is far more likely that there will be a consensus to re-introduce so-called ‘hidden’ fees, such as annual membership fees, rather make the move to increase interest rates charged on those UK credit cards.

The ongoing worries about debt currently facing UK households may, however, give UK credit card issuers cause for concerning. 2006 is looking like it could be the first year for some time where overall outstanding UK credit card debt fell over the course of the year, with figures for the year to June 2006 showing an overall fall of 2.4 percent. With figures also showing sharp increases in credit card repayments for July and August, a trend certainly appears to be appearing. Moreover, with increased utility and energy bills, on top of last week’s increase in base rate, any re-introduction of annual membership fees or overall increase in credit card interest rates may well lead the 70 million or so UK credit cardholders to give some serious thought to whether or not they really need an extra debt burden just at this time.

Richard Smith
13th November 2006

More Information:

• Credit Card Charges
  Credit cards appear to have only one cost to a user – the interest charged on purchases, but there are a whole raft of hidden charges just lurking below the surface. So, some cards offer an annual payment option in return for certain benefits. What is the best option, and in what circumstance
• Making Credit Card Fees Easier To Understand
  On average, UK credit card issuers make somewhere between £300 and £400 million a year in fees charged off of UK credit card users who have not fully understood how the credit card issuer has arranged the charging of their fees and who do not complain directly to the card issuer for any excessive or incorrect fee charges. In anyone’s language, this is a staggering amount of money!
• How To Avoid Paying Those Pesky Credit And Debit Card Fees
  It seems that UK credit and debit card providers would like to charge us each and every time we use our plastic cards these days. While the charge for each separate individual transaction may not seem like much, add them up over a month or two and suddenly the amount has some value. So, how do we avoid having to pay pesky fees to UK credit and debit card providers?
  

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