Credit card rate rise could benefit consumers

Friday, November 18, 2005

An independent comparison service has suggested that increasing credit card interest rates may benefit credit card holders in the long run.

The service uSwitch has said that the spread of credit card rate increases, from an average of 14.90 per cent to 15.04 per cent in the last two months, means that customers will not be encouraged to buy the payment protection insurance that it is suggested credit card companies sometimes use to reclaim profit margins.

"In many ways this might be what the market needs," said Nick White, uSwitch head of personal finance.

"If the whole market did this there would be an opportunity for banks to curb underhand practices and ultimately rely less on payment protection insurance sales and 'hidden charges'."

Credit card issuers have been accused of using payment protection insurance to reclaim profit margins lost when "rate tarts" carry out numerous credit card transfers to avoid interest charges.

Calculations by uSwitch show that credit card holders are now paying around £78.3 million more in interest every year as a result of credit card interest rate increases.

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