Finance Matters

Posts Tagged ‘Credit Card News’

Consumers are shunning credit cards in favour of debit cards, digital payment and payday loans, according to a new report from PricewaterhouseCoopers (PwC).

Although UK households paid off some unsecured debts in 2011, the average debt was around £7,900 at the end of the year.

The Ernst & Young Item Club has also reported a trend for consumers to shun banks and seek credit from alternative sources.

It claims that bank and building society lending to individuals has decreased by 23% since 2007 while lending by alternative lenders, including payday loan companies, has increased by 42% over the same period.

Speaking to the BBC, Neil Blake, senior economic adviser at the Item Club, said: “The contraction in consumer credit is driven by lack of demand to an extent, but we just need to look at the phenomenal rise in payday loans to see that the focus on decreasing demand masks a shift towards alternative providers.”

According to the PwC report, total outstanding credit card debt fell by 5% in 2011, with an average card balance of £1,000 at the end of the year.

In contrast, debit card usage continued its upward trend and increased 10% last year, making it the most used payment method over cash.

Simon Westcott, director of PwC, highlighted the use of digital payment methods, especially among younger people and suggested that credit card usage could continue to decline.

Mr Westcott commented: “This generation seems unlikely to switch to increased credit card usage in later life, as perhaps they would have done in the past, suggesting that debit cards, mobile payments and other innovations will force the credit card into an ever decreasing market.”

The use of payday loans, which offer a much easier application process than other forms of credit, is increasing at a ‘phenomenal’ rate according to the Item Club’s Mr Blake.

However, although payday loans can be affordable if they are paid off at the end of the term – usually around a month – rolling them over can lead to a spiral of debt because of their extremely high interest rates.

Consumer rights campaigners recently warned that new regulations designed to improve lending practices by payday loan companies may fail to protect customers in the near future,

The Finance and Leasing Association (FLA) has issued new guidelines limiting the number of times a payday loan can be rolled over to a maximum of three,

However, payday loan company Wonga is the FLA’s only member, prompting consumer grounds to demand further action.

Lloyds Banking Group has decided to withdraw Halifax and Bank of Scotland charity credit cards at the end of February because it doesn’t consider them a cost-effective way of donating to charity.

The bank has been issuing charity credit cards for over 23 years and they have raised millions of pounds for charities such as Cancer Research UK, the NSPCC and the Scottish SPCA.

In 2009 the Cancer Research UK credit card won Best Charity Card Programme at the Card Awards, an achieved that Lloyds’ was proud to mention in its corporate responsibility report.

Although the charities have expressed disappointment at Lloyds’ decision they say that they hope to explore other opportunities with the bank.

Speaking to Radio 4′s Money Box programme, Baroness Finlay, vice chair of the all-party parliamentary group on cancer, said: “The timing of it doesn’t seem very sensitive given there’s all the furore around bonuses.”

Earlier this month Lloyds Banking Group’s chief executive, António Horta-Osório, announced his decision to forgo his bonus, which could have been worth £2.4m.

Stephen Hester, the chief executive of RBS, was awarded a bonus of nearly £1m earlier this week, but after days of pressure from the public and MPs, he decided last night to hand it back.

Cashflows, which provides business to business financial services, has moved quickly to help fill the gap left by Lloyds’ decision to abandon charity credit cards.

The company, which is part of the Voice Commerce Group, has announced the launch of a charity credit card scheme which will run alongside its existing small business payment support activities in the UK.

Cashflows’ CEO and founder, Nick Ogden, said: “Cashflows is at the forefront of innovation in the financial services industry and we are already supporting many UK SMEs.

“Our card issuing services are able to provide support for charities and in the current economic situation it is vital that we try and support them, whilst they face inevitable cuts in donations across the board.”

With household incomes under increasing pressure from inflation and unemployment more consumers are turning to price comparison services to help them reduce their outgoings and the New Year has seen the launch of several new sites.

Insurance specialist comparethemarket.com has launched a new service which allows consumers to find which credit cards and loans will best meet their needs.

After putting in details such as the APR of their current card and any balance transfer fee, the user can see how much they would save on interest payments by switching to a different card.

Similarly, comparethemarket.com’s new loans comparison service allows users to view the repayment figure based on their individual requirements.

MoneySupermarket has also launched a new comparison site which it says is the first travel insurance comparison site in the UK which takes pre existing medical conditions into account.

Nine insurers are currently signed up to the service but this number is being extended over the coming months.

The company warns that failing to disclose a medical condition can invalidate a policy, even conditions which a customer may consider ‘minor’ such as mild asthma and high blood pressure.

A new price-comparison site targeted at drivers has been launched by Looking4Parking.com.

The company’s new mobile website allows drivers in the UK and Ireland to quickly search, compare and book air and seaport parking while on the move and also provides directions to car parks.

Meanwhile retailer Argos’s insurance and credit card price comparison website has been taken offline, just four months after being re-launched.

The site is being reviewed because it breached new guidelines for insurance comparison sites issued by the Financial Services Authority in October.

The guidelines were published due to concern over ‘the possibility that consumers could be misled about the services and information they receive’.

Nationwide has re-launched its Select Visa credit card which offers 0%-on-purchases for 18 months – the longest period currently available on the market for a 0% deal.

Cardholders also benefit from commission-free purchases while they are abroad and 0.5% cashback.

Balance transfers are eligible for the 0% interest deal, but for 17 months rather than 18 and there is a 2.95% balance transfer fee.

At the end of the offer period the card reverts to 12.9% APR and it
is only available to customers who use Nationwide’s FlexAccount as their main current account.

To qualify for a FlexAccount, customers must pay in £750 or more each month, not including internal transfers.

Nationwide has also launched a new mortgage product to help first-time buyers who only have limited funds available for a deposit.

The two-year fixed-rate 90% loan-to-value deal is available at an interest rate of 5.29%, with a £900 fee.

House purchasers who can make a 40% deposit will benefit from an interest rate as low as 2.99%.

The building society’s new products offer a breath of fresh air to consumers whose satisfaction is at an all time low according to recent research.

uSwitch.com’s survey of over 10,000 credit card customers found there was an overall drop in satisfaction with providers, but especially with traditional banks.

The Customer Satisfaction Report names Marks and Spencer as top for overall satisfaction followed by the Co-op bank, American Express, Tesco and Sainsbury’s, in that order.

Vanquis and Bank of Scotland came bottom for overall satisfaction with Barclaycard, HSBC, Halifax, Lloyds TSB and Santander just above them.

Michael Ossei, personal finance expert at uSwitch.com, said: “with overall satisfaction and customer service getting worse across the board, and the high street banks still providing some of the worst service, consumers should look around further afield at new providers for the best credit card for them.”

A pan-European investigation carried out in September 2011 revealed that 70 per cent of websites offering credit cards, loans and finance are failing to meet EU standards.

The investigation, which followed a large number of customer complaints, looked at 562 websites across the 27 member states and found that 393 of the sites were failing to adhere to the European Consumer Credit Directive.

Many of the sites, including all of those checked in Spain, Cyprus and Slovakia, were failing to display an annual percentage rate (APR), which covers the rate of interest, the term of the loan and any fees.

Without this information customers are unable to compare the costs of credit offered by different providers.

The situation was only slightly better in the UK, where concern was raised over 38 of the 47 websites checked.

The report said: “We know that the financial services market – including consumer credit – is underperforming for consumers”.

Following the investigation, national enforcement authorities will contact the financial institutions and credit intermediaries whose sites caused concern.

These businesses will be required to take action to correct the errors and could face fines, or even closure if they still fail to meet the required standards, depending on the legislative framework of the EU state in which they operate.

In related news, Santander reported a 4 per cent fall in UK credit card spending last year.

However, the total number of transactions per cardholder has increased by one per cent.

While there has been an increase in credit card spending on mail order, eating out, utility bills and petrol, there has been a fall in the use of credit cards for larger purchases such as clothing and travel.

Santander’s Callum Gibson said: “During times of austerity, you’d expect cut-backs to hit non-essential items like holidays and clothes and our customer data supports this.”