Page last updated at 20:01 GMT, Thursday, 5 February 2009

Barclaycard cuts 'low-risk' rates

Barclaycard
Barclaycard's move comes after an industry-wide agreement

Barclaycard has cut interest rates for some of its customers after coming under pressure to do more to help those struggling with finances.

About three million of its lowest-risk customers will see their rate fall by between 2.5 and 5 percentage points.

But critics have attacked credit card firms for being reacting too slowly to the fall in the Bank of England's Bank Rate, which now stands at 1%.

The average UK credit card rate is more than 10 times the Bank Rate.

There are 31 million credit cardholders in the UK, with about half paying off their debts at the end of every month.

Rising risk

Barclays' move comes after the major UK credit card providers agreed a new set of "fair principles" with the government in December.

It's a difficult time for many customers and for some their risk has gone up
Anthony Jenkins, Barclaycard chief executive

Other initiatives from the firm include a helpline offering financial support, lower rates for new customers and a freezing of rates for at least four months for existing customers.

Barclays also said it had committed not to contact late payers for up to two months, as long as they were actively working to sort out their financial difficulties.

But while three million customers would benefit from the interest rate cut, a further nine million would not see their rate fall as their risk of defaulting had increased, said Barclaycard chief executive Anthony Jenkins.

"It's a difficult time for many customers and for some their risk has gone up," he told the BBC.

He added that while the Bank Rate had come down sharply, the cost for Barclaycard of borrowing money to lend to customers was "just one element" of its business.

It also had to factor in the cost of risk of defaults and operating costs, Mr Jenkins added, meaning that for every 100 loaned it would tend to make just 1 or 2 profit.

Debt advice

Card firms adopted a new code of conduct last month after being threatened with referral to the Office for Fair Trading.

They have agreed to offer some breathing space to consumers struggling with repayments.

Under the code, card companies will give customers at least 30 days notice if they plan to increase their interest rates.

And they will not be able to increase rates for a year after a customer signs up for a card and then can only increase rates once every six months.

They also pledged not to increase rates for customers in financial trouble - covering those who have failed to make minimum payments or who are receiving assistance from a debt advice service.

The average UK credit card has an annual interest rate of 17.7%, according to financial data company Moneyfacts.

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