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Last Updated: Monday, 25 September 2006, 19:01 GMT 20:01 UK
Credit card issuers raise rates
A Barclaycard
Barclaycard has raised one cash charge by 6% to 27.9%
Many credit card firms have increased their interest rates in the last three months to offset enforced cuts in their default fees, a report shows.

Financial data firm Moneyfacts said 19 leading credit card issuers have put up their charges.

Earlier this year, the Office of Fair Trading (OFT) told them to halve their typical default fees to 12.

These are the charges users have to pay for failing to meet the minimum monthly payment on their credit card.

'Alternative incomes'

The list of credit card companies that have increased some of their charges includes not only American Express and Barclaycard, but also most of the UK's biggest banks, such as the Halifax, HSBC, NatWest and Lloyds TSB, plus a host of other major card issuers.

American Express has raised the rate on one card by 6%, while Barclaycard's Platinum card customers have seen the rate they have to pay for cash withdrawals go up by 6% to 27.9%.

"While it may be argued that the 0.25% increase to base rate in August resulted in some of these increases, with rises of up to 12.1% it is clear other forces are at play," said Moneyfact's Lisa Taylor.

"Rising bad debts and the lost fee revenue has left many providers with no choice but to look for alternative avenues for income.

"And it seems, raising interest rates is a popular option."

Declining use

Almost every aspect of the credit card industry has come under scrutiny or attack in the last couple of years.

In March, the Competition Commission imposed rules to stop store card customers being overcharged.

Payment protection insurance is being investigated by the OFT, and earlier this month banks gave in to government demands to give their customers better information about credit card cheques.

Card issuers are regularly accused of reckless lending, leading to people borrowing more than they can repay.

But despite the rise in total personal debt to 1.2 trillion, less than 5% of this - just 55bn - is accounted for by credit card debt.

Most of the country's debt mountain is due to the accumulation of mortgage borrowing which has risen sharply, in line with house prices.

Meanwhile, credit card use has been stagnating.

The British Bankers Association reported recently that borrowing on credit cards had fallen for the fourth month in a row, the first time there has been such a decline.

It attributed this partly to borrowers being more cautious.

But it might also be due to the continuing switch of spending from credit cards to debit cards.

Last year the Association of Payment Clearing Services (APACS) predicted this might be the first year since the introduction of credit cards in the UK in the 1960s that their use would fall.

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