Are interest rate rises starting to take their toll on credit card customers?

Levels of bad debt have been of considerable concern in the UK for some time, and it was always predicted that rising interest rates could see this problem getting even worse as households struggled to keep up with rising repayments.

According to recent figures a rising number of consumers have made late or missed repayments on their credit cards, which has netted the credit card companies tidy profits in penalties despite the caps placed in penalty fees by UK regulatory bodies last year.

According to recent reports consumers in the UK have paid out over £50 million in penalty fees to credit card companies just in the past six months, and this is despite the penalty ceiling limits of £12 per fee that were put into force last year. Credit card companies were set to lose out on a lot of revenue from the cut in penalty fees, but with an increasing number of consumers making late payments or missing payments altogether these card companies could still be set to make a fortune.

Industry experts state that the amount paid to credit card companies in penalty fees in the last six months, coupled with the levels of consumers that are failing to repay their debt on time or at all, reflects the problems that rising interest rates may be having on consumers. Experts also state that the amount being paid to credit card companies in penalty fees would have been far higher if UK regulators had not placed a ceiling limit on these charges.

"This is the latest evidence of how many people are struggling to cope as interest rates start to rise. The effect of missing one credit card payment can last as long as three years. That is how long the mistake will stay on your credit file and it will be used by firms to decide whether they’re going to lend you cash and what they’re going to charge."

Tom Smith
7th August 2007