Consumer choice key to better card rates?


Consumer choice is the answer to high card ratesNews that credit card rates have risen dramatically in the wake of the credit crunch and ensuing recession have led to heightened calls for increased industry regulation in recent weeks. While the UK government has already acted and is due to release the results of a consultation on credit and store cards in April, there is still clamour for legislators to go further. The latest commentator to add their voice to the debate is former government advisor Ros Altmann. In an interview with the BBC, Ms Altmann said the current high level of credit card rates is indefensible. She therefore advocated the provision of greater powers to a credit card industry regulator to ensure consumers are not exploited. However, Chris Tapp, director of Credit Action, is not quite as convinced that the problem lies with credit card companies, instead suggesting that consumers already have the opportunity to avoid paying over-the-odds to service credit card debt.

Where does the problem lie?
Since March 2009, the Bank of England's Monetary Policy Committee has chosen to keep interest rates at an historic low of 0.5%. However, this has not stopped credit card companies from charging rates of up to 18%, and it is this discrepancy that Ms Altmann objects to. She said that the possibility of a regulator being given the power to oversee the setting of credit card rates should not be ruled out, and called for an inquiry into the way the market works. Meanwhile, Mr Tapp believes that while the base rate of interest is at an all-time low, the real issue is that lenders are having to pay more for the money they buy on the wholesale markets than they have done in the past. This is because, with more and more people defaulting, lending now carries greater risk, and it is for this reason that credit card companies are having to pass the burden onto customers.

What can consumers do?
While Ms Altmann believes the best way to rectify the situation is through legislation, Mr Tapp suggests consumers have the power to bring about change. He noted that people are not forced to pay the high rates being charged by providers, adding that if a certain credit card is not competitive then they should simply refuse to use the product and instead compare credit cards to find the best available alternative. With this in mind, Mr Tapp said the answer lies in education. "The country has 'sleepwalked' into a lot of trouble," he explained. "So hopefully increasing people's skills will lead to a more demanding consumer base. If companies want their business they will have to offer something competitive. A better educated consumer is of benefit to everybody." In the meantime, credit card customers should ensure they scour the market for the best credit card offers and ensure they choose a card, and a rate, that best suits their circumstances.

Published: 25 February 2010