Credit Card Crackdown

Would you expect to be charged for not using your credit card? Or for being in credit on your plastic? Well, watch out!

Credit card providers are increasingly hitting back at customers who aren't making them any money. We've already seen most of them start charging balance transfer fees for introductory interest-free offers as well as cutting the length of these introductory periods. Now they're turning to the smaller market of customers who rarely use their credit cards or who have inadvertently ended up with a credit balance because they've overpaid.

Lloyds TSB (LSE: LLOY) has just written to 50,000 credit card customers to inform them that from March 1st they'll have to pay an annual fee of £35 unless they start using their cards more regularly. And these aren't customers who owe them money -- they're the ones who pay off their balance in full on the odd occasion that they do make use of their plastic. How bizarre!

What's more, the bank is not prepared to explain what it considers to be irregular use. You'll only know if you get a letter. And my husband who hasn't used his Lloyds TSB credit card in at least three years has not (yet) had a letter.

The bank says that it costs money to send out statements and hold a credit line for someone who's not using their card, so to a certain extent I can see their point. Telling people that they'll be charged £35 for not spending money will at least make them sit up and think about whether they really need their credit card.

So from a shareholder's point of view, it looks like a great way to get rid of pointless customers that are costing money. It's not so good for customers who simply keep a credit card for emergency use only.

There is, of course, the fact that people may have credit cards that are gathering dust because they've stopped using them and haven't bothered to close down the accounts. Too many open accounts don't look good on your credit file so if it makes people close down unused accounts then that's not such a bad thing. It still seems bizarre to charge someone for not using their credit card though.

My husband wondered if he hadn't had a warning letter because he's actually had a 'positive' balance on his credit card for the last three years. Okay, so it's only 12 pence but it's just this type of customer that another card provider, MBNA, has decided to target as a means of getting money out of people who rarely use their cards.

MBNA is warning customers in credit that they could be charged up to £10 if they haven't used their card for 12 months or more. They've been given until the end of next month to transfer, spend or donate the money to an MBNA-nominated charity. If the positive balance is less than £10, they'll be charged the relevant amount to bring the card balance down to zero.

The amusing thing is that when my husband was checking his latest Lloyds TSB credit card statement, he realised that, without his knowledge, the bank had craftily reduced his own credit limit to zero. So, he's stuffed either way. He can't exactly buy anything on his credit card for a mere 12 pence and if he buys anything costing more than that then he'll exceed his credit limit of zero and incur penalty charges!

As I said, it's bizarre. Whatever will they think of next?!

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Jane owns shares in Lloyds TSB