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Credit card companies may seek to charge customers up to
£1 billion a year in
higher interest rates and annual fees to make up for revenue lost after recent
rulings from consumer watchdogs, according to a report published today by
PricewaterhouseCoopers (PwC).
Lenders have seen a steep fall in profit margins as a result of new regulation.
The research shows profit margins on credit cards falling during 2006 as the
sector came under scrutiny from the OFT, The Competition Commission and the FSA.
The OFT's decision to "cap" default charges at £12 was the first move to affect
margins, said the report.
Ongoing investigations into interchange fees and PPI will add to the pressure.
Richard Thompson, the author of the report, commented: "With fierce competition
and rising bad debts already hitting issuers, it's hard to see how the banks
will absorb £1 billion of lost revenues.
"We are likely to see a 'waterbed effect', whereby charges pushed down in one
area pop up somewhere else.
"To put it in perspective, card issuers would have to levy annual fees costing
the average credit card user £35 a year to recoup the potential £1bn loss.
"If lenders tried to recoup this through interest rates alone, we would see APRs
increase by two percentage points on average.
"In the face of mounting criticism, institutions do not seem to be making an
effective case before the regulators.
"The consumer credit sector provides major benefits to consumers and the economy
as a whole and these benefits need to be properly explained."
Source:
Getting Paid
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