The credit card industry is falling on hard times and it will be credit card customers that suffer, according to analysis of the credit card market by PricewaterhouseCoopers.
Annual fees for credit cards could be making a come back while zero per cent balance transfer credit cards
could soon be a thing of the past, so those looking to switch their balance to a new deal might want to do so sooner rather than later.
Net yields "declined significantly" between 2000 and 2007, the firm found, as financial institutions competed heavily for a share of the credit card market, with balance transfer credit cards becoming increasingly popular. While profits have increased during the last 18 months, they are still dramatically lower than a decade ago.
This change in the market is driving credit card companies
to review their lending policies, tightening criteria and in many cases cutting back customers' credit limits. Credit card companies have also announced that they are to start sharing data about customers that regularly switch between balance transfer credit cards.
Credit card companies are also being hit by new legislation on credit card payment protection insurance
, which has made the selling of PPI restricted and less profitable following an investigation into incidents of mis-sold payment protection insurance
Campaigners for consumers' rights, such as MoneySavingExpert.com, have said that the credit card companies are targeting customers which are not bringing in the profits, so-called 'rate tarts' which switch from one interest-free period to the next in order to legitimately avoid paying any interest on the debt.
Meanwhile, the Bank of England has been dropping interest rates over recent months in order to encourage mortgage
lending and ease the pressure on struggling households, but far from becoming cheaper, credit card lending has become more expensive with the average APR rising by 0.7 per cent over the last 18 months.
Having hidden behind mortgage lenders
while the Government called on them to reflect the rate cuts in the cost of their home loans, credit card providers which have not dropped their rate in line with the base rate are now coming to light and pressure is being put on them to do so.
"Conditions remain extremely tough for lenders in the current market said Richard Thompson, partner at PwC, "and, in particular, our findings in Precious Plastic 2009 indicate the prospect of rising levels of charge-offs in the UK market as the recession takes its toll.
"We expect that any reductions in APRs, coupled with the prospect of increasing charge-offs, will lead issuers to carefully consider the introduction of annual fees. Further, capital constraints faced by many issuers are likely to limit the ability to offer zero percent balance transfer deals."
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