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Credit card complaints in the UK have hit an all-time high as consumers rail against what they see as excessively high credit limits and interest rates.
Data published by the Financial Ombudsman Service, an independent public body, on Friday showed that 5,660 complaints about credit cards were lodged from October to December last year, a 76 per cent increase compared with the same period in 2022.
Of the complaints, 3,086 were related to perceived unaffordable or irresponsible lending by financial firms.
“Given that many people are struggling in the current economic environment, it’s concerning to see such a significant rise in credit card complaints,” said FOS chief executive Abby Thomas.
“Owing significant amounts of debt can be stressful and it’s important that consumers are treated fairly and transparently by financial service providers.”
Since the Bank of England started raising interest rates in December 2021 to contain soaring inflation more consumers have taken on credit card debt and many have seen sharp increases in the interest charged because it is often tied to the BoE rate.
Some 33.8mn adults in the UK, or 64 per cent, have at least one credit card, according to price comparison website Money.co.uk. Bank of England data shows credit card borrowing grew from £300mn in December 2023 to £900mn in January 2024. Outstanding balances rose by 9.2 per cent over 2023, according to The Money Charity.
Trade body UK Finance said that in November 2023, 49.5 per cent of outstanding balances incurred interest.
According to Moneyfacts, a financial data company, as of February 2024, the average annual percentage interest rate (APR) was 34.7 per cent, compared with 26.2 per cent in December 2021.
“Interest rates are higher on credit cards and 0 per cent offers are shorter, than in years gone by, so consumers are being charged more and have less time to pay off debts interest-free,” said Moneyfacts finance expert Rachel Springall.
Michelle Stevens, a finance expert at comparison website Finder.com said rewards cards and travel credit cards experienced some of the biggest jumps, with the average APR for rewards cards jumping from 37 per cent in January 2023 to 43 per cent in January 2024.
Stevens also noted that only about half of customers were offered the representative advertised rate, while the rest could be offered higher APRs depending on their financial situations.
However, some experts said that higher credit card rates may not be grounds for a legitimate complaint.
“This will be in the bank’s terms and conditions, but people just aren’t as used to rate rises we’ve seen over the past 18 months,” said Andrew Hagger, a personal finance expert at MoneyComms.
“People could also be applying for cards and being turned down, if in the credit crisis their record has got worse and banks are tightening their criteria.”
There are also fewer 0 per cent deals available, with the number of these introductory purchase offers falling to 58 from 62 since December 2021.
Consumers may also be caught out by 0 per cent transfer deals ending.
“In the case of a 0 per cent balance transfer, the initial limit given may have been fine during the 0 per cent period, but became unaffordable when that ended. In these cases the Ombudsman may award a refund of interest charged,” said Sara Williams of advice service Debt Camel.
Source: Economy - ft.com
