Credit card customers find £8.8billion more credit on plastic's not so fantastic

02 July 2009 / by Rachael Stiles

Credit card providers have increased the credit limits of their customers by a total £8.8billion in the last 12 months without the cardholders' consent, subsequently increasing their debt levels and the amount of interest they pay.

According to new research from uSwitch.com, 5.7 million credit card customers have seen their limits hiked by an average £1,538, taking the average credit limit up to £6,667, increasing the average amount of interest paid from £800 to £1,040.

 

Not only have credit card customers not requested this inflated spending power, but they have also not consented to it, and could end up with collective interest payments of £5.9billion on their borrowing.

 

The study from uSwitch coincides with the Government's White Paper on credit cards today, which has laid out new ground rules aimed at protecting customers from unscrupulous lending methods.

 

The new rules include stricter regulation on credit and store cards to prevent consumers being encouraged to run up debts they cannot afford to repay, and a ban on unsolicited credit card cheques being sent to customers, which can tempt consumers to borrow more money.

 

Reflecting how households are finding themselves strapped for cash during the recession, 13 per cent of credit card holders have requested that their credit limit be increased to help them to bridge the funding gap. However, consumers are not the only ones struggling to get credit, with four per cent of these requests being rejected by lenders who continue to find the credit markets largely frozen.

 

Louise Bond, personal finance expert at uSwitch.com, said that while the increased credit limits could prevent borrowers from exceeding their limits and avoid getting charged, it also encourages them to spend more.  

 

"Providers are taking away consumer choice by throwing extra credit at people without their consent," she said, adding: "There is also a question mark around how these people are selected for an increase or decrease to their limit and if this in itself is in the customer's best interest."

 

Those credit card holders who repay their credit card bill in full each month might welcome the opportunity to use their credit card for more of their monthly spending, even increasing the benefits of features such as cashback, but for most other people, Ms Cuming warns against using credit cards as a financial crutch because it does not represent a cheap way to borrow.

  

"In most cases, providers really aren't helping consumers by throwing cash at them as it could be placing unnecessary temptation in their path," Ms Cuming concluded.

 

© Fair Investment Company Ltd