New criticism for Britain's credit card firms

06/07/2009

Britain's credit card lenders are pulling the plug on many of their customers, MoneyExpert.com said today.

The financial website said that the firms were reducing lending to consumers in the financial crisis - pointing out that "high risk and unprofitable" customers were now being seen as too big a risk.

MoneyExpert.com's comments follow the Bank of England's latest quarterly Credit Conditions survey, released last week.

The report showed that lenders of unsecured credit had tightened lending to customers over the past three months - and were likely to tighten further over the three months to come.

Last week also saw the release of the government's Consumer White Paper, which proposed a crackdown on credit card firms who hiked APRs for customers and announced a ban on unsolicited credit card cheques.

Pierre Williams, head of research at MoneyExpert.com, said: "The Bank of England by contrast is reporting widespread reductions to credit limits, a picture reflected in MoneyExpert's own research … The white paper appears to be at least a year too late as the horse has bolted following years of excessive lending."

Kevin Still, EuroDebt director, added: "Reducing credit limits for high risk and non-profitable clients can be an emotive issue. It is important to differentiate between the two, as non-profitable clients can represent those that clear their balances every month, so that the credit card issuer never earns anything in interest. High risk clients are likely to be those near or at their credit limit, who use the card to withdraw cash and day-to-day expenses, like grocery shopping. Trading down on these clients can be very damaging for the consumer if there is not a co-ordinated approach. Where this is well managed, a consumer may benefit from lower interest on the main balance whilst the limit is lowered to accelerate the rate at which the card debt is reduced to a level that the card issuer is more comfortable with. It is irresponsible when the limit reduction occurs with no notice and requires the client to terminate the account or fall into further debt because they can't bring the account within the revised terms.

"EuroDebt is seeing more clients joining Debt Management Plans or starting IVAs that have been tipped over the edge by irresponsible lenders increasing interest rates or reducing credit limits with no notice."

Tags; Debt Management and Banking, Credit Card Lifestyle,

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