Capital One credit card increases "outrageous"

05/02/2009

Capital One customers are said to be outraged by the lender's plan to increase credit card interest rates by as much as 14 per cent.

The credit card provider is one of the UK's largest and the interest hikes could add £120 to annual repayments.

Despite several cuts to the Bank of England's official lending rate, the firm has said that changes in the "credit and lending environment" have led to the decision.

"Changes in the credit and lending environment mean that it is now costing us more to lend, and so we are increasing the standard interest rates for some of our customers," a spokeswoman explained.

Customer Paul Durman told the Guardian he expects that a number of borrowers will cancel their cards.

"This seems an outrageous hike in the interest rate," he said. "Of course, the real problem will be for those who are insufficiently creditworthy to move or pay off their balance. They look likely to be penalised unfairly."

Meanwhile, Barclaycard has announced a freeze on credit card rates for all its UK customers. The bank will freeze rates for the next four months for existing customers and also plans to drop the purchase rate from between 2.5 and five per cent for customers identified as having a low-risk profile.

Struggling borrowers are to be offered a new debt advice service which includes a helpline and credit limits will be reduced when customers are experiencing difficulties.

"According to Moneyfacts the average UK credit card has an annual interest rate of 17.7 per cent, but we are regularly seeing clients notify us of interest rate increases to well above 24 per cent along the lines of the Capital One increases," explained EuroDebt director Kevin Still.

He added: "Egg appears to have increased rates on some of its cards from just under 20 per cent to just under 27 per cent. Barclaycard's position is welcomed, as it seems to reflect the intent of the new code of conduct. Others seem to taken the opposite view, which cannot possibly be consistent with treating customers fairly, especially those that have taken the lenders advice and talked to them about their problems often with very negative consequences.

"The impact of some of the rate increases has meant that the monthly interest rate charges are above the minimum payment threshold, such that customers paying by direct debit may in fact get a default charge applied for going over limit without having used their card in the statement period. This is the beginning of the debt spiral, especially for the very large number of consumers having to use credit cards to pay for day-to-day items like groceries."

Tags; Debt Management and Banking,

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