Credit Cards Shamed Into Cutting Charges
Below is a MRR and PLR article in category Finance -> subcategory Credit.
Credit Card Charges Under Scrutiny
Summary
The Competition Commission, a government watchdog, has taken action to pressure credit card companies into reducing their charges. This long-overdue move follows findings that the industry has been overcharging customers by between £55 and £100 million annually through high interest rates and fees?"a practice ongoing for over three years.Key Issues
Store cards are the worst offenders, with interest rates reaching up to 30.9%, despite the Bank of England's base rate being just 4.5%. Notable offenders include TJ Hughes and the Faith Card. High penalty charges for missed payments and overpriced Payment Protection Insurance (PPI) have also come under fire.Changes and Impact
The Commission, supported by consumer bodies, has found that PPI is often misused. They have ruled that PPI must be sold separately from credit cards to ensure transparency and cost-effectiveness. This change is expected to benefit online markets, where cheaper PPI deals are available.New Regulations
The Competition Commission has introduced five major rules:1. Cards charging over 25% interest must display warnings about cheaper borrowing alternatives on every monthly statement.
2. Interest rates and penalty charges must be clearly shown on each statement.
3. Statements must highlight the higher cost of just paying the minimum repayment.
4. Customers must be offered the option to clear their monthly balance via direct debit, avoiding interest charges and penalties.
5. PPI cannot be sold as a combined package with a credit card, ensuring purchasers see true costs.
Industry Reaction
These changes are likely to force retailers to cut down on excessive charges. However, mainstream bank-issued cards charging 14-18% are still considered high.Between 80% and 90% of store cards, used by millions, charge over 25%. Some retailers have already reduced their rates, with Harvey Nichols, River Island, and Monsoon leading the way.
Table of High-Interest Cards
- TJ Hughes: 30.9%- Faith Card: 30.9%
- Owen & Owen: 30.7%
... and many more.
Note: Some cards offer lower rates with direct debit payments.
Behind the Scenes
These cards are often managed by large finance companies like GE Capital. Profits are split between the card operators and retailers, with bonuses for reaching certain debt thresholds, creating pressure on consumers to sign up.Final Thoughts
John McFall, Chairman of the House of Commons Treasury Committee, criticized retailers for prioritizing profit over customer welfare. This regulatory action aims to rectify these issues, ensuring fairer practices in the credit card industry.You can find the original non-AI version of this article here: Credit Cards Shamed Into Cutting Charges.
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