UK consumers face stiffer credit card fees

Liquidity woes in financial markets are feeding through to consumers, who are being hit with stiffer credit card fees or being refused credit altogether.

In the past two months, there have been no fewer than 125 fee and rate increases in Britain's credit card market, according to personal finance website Moneyfacts.co.uk, as the credit crunch takes it toll.

It raises new fears that overstretched consumers could struggle to service existing debt, leading to further increases in personal insolvencies, already at a record high.

The worries come as Bank of England Governor Mervyn King said banks could take several more months to reveal the full extent of their losses, following news of more write-downs relating to US subprime mortgages.

This side of the Atlantic, cash withdrawal charges have borne the brunt in the consumer sector, with 69 credit cards hiking fees for withdrawing cash and 25 increasing the interest rate charged on the funds.

Providers of 18 cards have hiked foreign usage charges, 10 have pushed through higher balance transfer fees and three cards have increased the interest charged on purchases.

Many cards have suffered a combination of these rises. The Halifax, for example, has increased cash fees to 3 per cent of the sum withdrawn from 2.5 per cent on all cards and the interest charged on cash by 1 per cent to 23.95 per cent on its charity credit cards.

Nationwide has increased cash fees on its classic, gold and Comic Relief Visa cards to 2.5 per cent from 2 per cent, and has hiked the interest charged on cash withdrawals by up to 4 per cent to 22.9 per cent on the same cards.

American Express has lifted the cash rate on its platinum moneyback card by two per cent to 27.9 per cent, and the purchase interest rate on the same card by 3 per cent to 18.9 per cent.

Esther James, a credit card analyst at Moneyfacts, said the number of rises was "quite staggering".

"It seems as if the credit crunch is beginning to cause credit card chaos," she said.

"With the majority of increases staying away from the headline purchase rates, these fee and rate increases are less in the public view, and often tucked away in lengthy terms and conditions.

"However, they can still make a substantial increase to the cost of using your card." Others are finding it difficult to obtain credit at all, as providers tighten their lending criteria amid rising bad debts.

Rejections

Credit card application rejections have risen 17 per cent in the past six months, according to MoneyExpert.com.

Up to 3.27 million people have been refused credit in the six months to end-September, compared to just 2.7 million in the six months to end-March.

Lenders have also reduced the amount of credit offered to successful applicants.

Sean Gardner, chief executive of MoneyExpert.com, said: "Credit card companies have had a rough ride with bad debt, so it's no surprise that they are becoming stricter on who they'll lend money to.