Return of the fees as credit card companies get tough

One in eight credit card companies have at least one credit card with an annual fee, according to new analysis by MoneyExpert.com.

And with credit card industry profits falling 43 per cent last year, the independent financial comparison website warns that more providers could introduce fees in 2007 to stave off rising bad debts and increased regulation.

Morgan Stanley and Co-operative Bank have both recently announced they will charge some of their credit card customers an annual fee, and Lloyds TSB now charges £35 a year for customers who do not use their cards regularly.

MoneyExpert.com’s figures show that eight credit card companies now charge an annual fee on at least one of their products. The highest fee is some £275 a year and the lowest just £24. The fees on cards are similar to those charged by banks for so-called packaged current accounts which offer incentives such as cheap insurance in return for the fee.

However despite paying for the privilege of using a credit card, customers of fee-paying cards aren’t getting deals to match. Only two cards offer any kind of introductory offer on balance transfers or purchases, at a rate of around 5.5 per cent for six months. The average standard APR on balance transfers is 16.78 per cent and on purchases is a staggering 27.1 per cent.

Only one fee-paying credit card on the market offers cashback and three have a shopping reward programme. However, other incentives include a concierge service, airport lounge facilities, medical insurance, refund protection and guaranteed hotel accommodation.

Sean Gardner, Chief Executive of MoneyExpert.com, said: “The rising tide of bad debt hitting banks and other credit card firms is forcing providers to tighten their belts and think of new ways to make money.

“We thought we’d seen the end of annual fees on credit cards, but we think there could be a return sooner rather than later. Credit card companies will be under pressure to improve profits and reduce bad debts, and that could mean finding customers who are prepared to pay for credit.

“Many of the fee-charging cards are aimed at the well-off who want exclusive deals. But there are also signs that other providers are introducing fees for people who don’t use their cards enough.”

MoneyExpert.com’s research shows the average standard APR on balance transfers across all credit cards is 16.16 per cent, and 16.74 per cent on purchases. There are now 156 cards on the market with zero per cent balance transfer deals with the best offers lasting 12 or 13 months.

Recent MoneyExpert.com research showed that up to 2.8 million people saw an application for a credit card turned down in the past six months, equating to around 15,555 rejections a day.

Sean Gardner added: “It makes sense for credit card companies to reject applications from people with debt problems – or in the current environment even people who look as if they have already borrowed enough. Rising interest rates mean it is harder to service debts and people should not be encouraged to get deeper into debt.”

MoneyExpert.com offers a free credit profiling service which helps people to understand their likely credit profile by answering straightforward questions about their credit history. MoneyExpert.com then recommends products from financial providers who lend to consumers with similar profiles, which lessens the likelihood of rejection.