Credit Card Firms Exploited?
Below is an article relating to credit and debt.
Credit card firms being exploited
Credit card companies were depicted in an unusually sympathetic light yesterday after a report claimed that they were being exploited by their own customers.
Accountancy giant Price-waterhouseCoopers said firms were being abused by "rate tarts"
credit card users who move from lender to lender to take advantage of introductory offers.
The tactics are costing the credit card industry about £1 billion a year in lost revenues, the report said. It added that companies should start restricting 0 per cent offers to their "low risk" or wealthy customers.
Controversially, it also recommended the targeting of the UK's eight million borrowers with poor credit ratings - despite a recent spate of high-profile suicides among the heavily in debt.
Richard Thompson, one of the authors of the report, said an increasingly crowded UK marketplace meant the costs of acquiring credit card customers was going up.
The credit card market is finely poised between six major issuers. Royal Bank of Scotland and Barclaycard both have 16 per cent shares, HSBC a 14 per cent split, HBOS 13 per cent and Lloyds 11 per cent.
MBNA heads a string of lenders with less than 9 per cent share. Capital One, which recently came under intense criticism for its card marketing in the House of Commons, has a 5 per cent share.
Thompson said: "It has become commonplace to offer 0 per cent or low interest transfer rates to win customers. Two years ago this was not the case. It is an increasingly competitive market."
To illustrate his point, he claimed that the average adult receives 75 unsolicited pieces of credit card junk mail every year - more than one a week.
The House of Commons' Treasury Select Committee recently took the other side of the argument on the issue of credit card competition, accusing the chief executives of major banks of encouraging heavy borrowing. The banking supremos were summoned last month to account for the role of credit cards in the UK's £1 trillion debt-pile.
Dumbarton MP John McFall accused HBOS chief executive James Crosby of "skimming money off ... poorer customers", and the committee quoted examples of debt-related suicides.
But PwC suggested yesterday that the major banks should target poorer people for more credit cards, not less, as a way of easing the current competition strains.
Thompson suggested charging higher rates, depending on the risk levels of a customer.
He said: "It should be like car insurance - the higher the risk, the higher the rate.
"Better an offer from a well-known lender than from loanshark.com."
Date: Nov. 02, 2004
JOHN BOWKER
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