Credit card companies are heading for a showdown Gordon Brown!
This is because they have rejected calls to reduce their interest rates (some as high as 69%) after last week's shock interest rate cut.
In his latest monthly press conference yesterday the Prime Minister called for a "new, responsible approach" to lending.
The average interest charged on nearly 72 million credit cards in circulation in the UK has risen from 16.8% a year ago to 17.6% according to data analysts Defaqto. This has happened despite the Bank' of England’s base rate almost halving from 5.75% to 3% over the same period.
Gordon Brown said: "I think we have got to bring the credit card industry in to talk to them to join with us in establishing clear principles to apply to the costs people face on their existing debts."
Downing Street said last night credit card companies were behaving "irresponsibly" and announced that Lord Mandelson, the business secretary, would meet representatives of the industry to discuss their practices and potentially draw up a "guide on behaviour".
Here are how some credit card rates compare:
6.8% Barclaycard Simplicity Visa
9.9% Co-op Bank Platinum Fixed Rate Visa
15.9% Bank of Scotland Mastercard
15.9% Lloyds Bank Airmiles Duo
16.9% NatWest Classic
31.5% MBNA Travel Amex
34.9% Capital One Classic Visa
39.9% Vanquis Bank
Despite the Government’s warning, PayPal increased the rate on its card from 12.9% to 16.9%, and other leading
credit card providers said their rates were likely to remain on hold.
Barclaycard and Nationwide said they would not cut their rates, while Nationwide said:
"We have no immediate plans to change our credit card rates but our current range remains competitive, with a number of benefits including free foreign usage.
"We monitor the market to ensure we continue to remain competitive and, as a responsible lender, support any initiative that seeks to improve customer understanding of this market."
- Homes under threat from missed payments?
And as household bills continue to rise, concern also rises that many of us are losing our homes as credit card firms claw back relatively small sums, often after only just one or two missed payments.
Citizens Advice said 20% of all new debt inquiries in 2007-08 related to credit card, store card and charge card debts saying "Bureaux in England and Wales are dealing with nearly 1,400 new credit, store and charge card debts every working day".
The Consumer Credit Counselling Service said yesterday it had witnessed a surge in "charging orders" by card firms which may ultimately be used to seize your home.
Apacs, which represents the credit card industry, said the rates charged bore little relation to the Bank of England's base rate, with spokeswoman Sandra Quinn saying:
“It's fair to say that credit cards' interest rates never move up or down as a result of base rate changes. And right now they are not at an historical high in relation to base rates."
Defaqto blamed government regulation, like the OFT ‘s 2006 decision to impose a £12 cap on credit card penalty fees, and falling profits on payment protection insurance, for the increasing cost of credit.
But Apacs said that average balances on credit cards had yet to show any increase despite pressure on household budgets. "The average balance on a credit card is £1,856, which is lower than it has been for the previous two years," it said.
Claim back your credit card fees
The 30.8 million of us who own credit cards have an average of 2.3 cards each, which is down from an average of 2.4 in 2003-04. Apacs say this is due to stricter lending controls, ensuring that those of us with large much debt are not being offered more cards.
The Department for Business, Enterprise and Regulatory Reform said the government would be calling on the credit card industry to bring forward a "statement of best practice" about how providers would apply fair principles to existing debt, continue to make credit available in a responsible manner, and give support to families in difficulty.
So, what do you think the Government do to tackle the credit card lenders?
Let us know your thoughts in the comments below.