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Last Updated: Friday, 16 February 2007, 13:23 GMT
Barclaycard tackles over-spenders
Barclaycard promotion in the 1960s
Barclaycard was launched as the first UK credit card in 1966
Barclaycard will reveal the effect of stricter credit card controls when its parent, Barclays bank, publishes its annual results next week.

Barclaycard has been cutting some customers' credit card limits, even stopping their ability to borrow cash on plastic - without warning.

These policies have affected 330,000 Barclaycard customers between the start of 2005 and the middle of 2006.

The bank takes this action when it sees that customers are in too much debt.

Bad debts

A year ago Barclaycard, the UK's biggest credit card lender with 11m customers, had to write off 1.57bn in bad debts among its card holders, 44% more than the year before.

To help combat the problem it has been turning down 50% of all its new credit card applicants.

It's nice to know they are actually doing what they say they are doing
Sandra Quinn, Apacs

But it has also been keeping a much closer eye on the borrowing and spending of existing customers.

"We are acting on information held either by Barclaycard or a credit reference agency which suggest customers may be experiencing financial difficulty," said a spokesman.

"By taking this action, Barclaycard aims to help prevent customers from getting into deeper financial problems."

Warning signals

Among the warning signals watched by the bank are large amounts of cash withdrawals on the credit card, customers making only the minimum repayments each month, or missing them altogether.

The bank also gets information from credit reference agencies to spot if debts are building up elsewhere, and it shares information on customers directly with other banks such as the Co-op, Egg and Abbey.

When the credit limit is reduced the customers are sent a letter telling them this is about to happen.

But if cash withdrawals are stopped this happens without any warning.

The bank says it does this to stop people rushing out to take out more cash, and getting deeper in debt, before the curtain comes down.

The ban on cash withdrawals typically last for six months.

Reckless lending?

The past few years have seen banks being severely criticised for supposedly reckless lending.

Examples have been raising credit cards limits without the customers even asking for it, sending blank credit card cheques to customers (a marketing tactic which has been largely discontinued), and generally encouraging people to borrow more with little scrutiny of their real ability to repay.

Claims by the banks that they adopted more responsible lending policies have not cut much ice with their critics.

But Sandra Quinn, of the banking organisation the Association of Payment Clearing Services (Apacs) said of Barclaycard: "It's nice to know they are actually doing what they say they are doing."

Barclaycard's approach does not however reflect a standard industry practice, and different banks have different policies.

Affecting the bottom line

Rising debt levels among their customers have put the banks under considerable pressure to do something about problem borrowing.

Despite record levels of profit last year, the banks also had to write off huge sums of bad debts, partly due to defaulting credit card customers.

Collectively UK banks lost 3.3bn to bad debtors in the first half of last year alone.

When the banks' annual reporting season comes to an end, those bad debts may have risen even further.

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