Former government financial advisor, Ros Altmann is calling for an investigation into the profit margins of credit card companies. She feels current credit card rates of around 18% are excessive and that it may be time for a regulator to be brought in to oversee the charges. However the card industry believes their rates are justified.
Over the decade, base rates have tracked down to a historical low of 0.5%. The annual percentage rate on credit cards has been consistently higher, with one unofficial estimate from Moneyfacts suggesting an average rate of 18.5%, the highest for twelve years.
The card companies say they are having to charge more because so many people are failing to pay their bills. In an interview with the BBC, Jemma Smith from the UK Cards Association commented "The risk of actually lending to us as customers in uncertain economic times such as these actually goes up, which is why there has never been and never will be any link between the credit card APR and base rate."
However, Ros Altmann said "There obviously has to be a link between the amount that they pay to borrow money and the amount they charge their customers for loans so it can't possibly be correct to say there's never been a link. There may not be a strong link, but there has to be some link between the amount they pay to borrow and the amount they charge their credit card customers."
Ros Altmann is also calling for an inquiry into the way the market works and suggests there may be a case for a regulator to oversee card interest rates. Meanwhile, advisers at the consumer magazine Which? say high rates aren't the only problem at the moment. Tricks like raising rates retrospectively will be illegal in the United States from Monday 23rd February, but are likely to remain legal here for at least a while to come. The advice to consumers is to get at least three cards to optimize their different benefits.
Martyn Hocking from Which? suggests "If you're going abroad, the best card to use for shopping will be card A, if you're the sort of person who doesn't pay off your credit card bill every month you'll need card B. If you're in a position where you want to transfer a balance onto a new card and give yourself twelve months to pay it off you need card C."
Despite a Government enquiry into credit card terms, there's unlikely to be any change in the UK until well after the general election. As for credit card interest rates, the only limiting factor remains market competition.