Up to a million Barclaycard customers could pay a new £20 charge -- and other credit-card issuers are poised to follow suit.
If you have a Barclaycard which you don't use very often, then beware, because you're in the firing line for a new fee of £20 a year which could arrive as early as September.
Barclaycard is the UK's leading issuer of credit cards: with almost ten million accounts, it controls around a seventh (15%) of the UK market for our 'flexible friends'. However, over the past year, rising bad debts among borrowers have damaged credit-card providers' margins. Hence, Barclaycard has come up with a foolproof way to boost its profitability.
Barclaycard has hit on the idea of introducing 'dormancy' or 'low usage' charges -- demanding a yearly fee from those customers who use their credit cards infrequently. So, if you haven't used your Barclaycard for, say, a year, or have failed to spend a certain amount, then you could be hit by a low-usage penalty of up to £20 a year.
In this respect, Barclaycard is only following the lead of Lloyds TSB, which introduced a low-usage fee of £35 in February. Although this step may have affected only fifty thousand Lloyds TSB cardholders, up to a million Barclaycard customers could end up paying its new dormancy fee. (Moreover, MBNA has told cardholders whose accounts are in credit that it will charge them a fee of £10 or the credit balance, whichever is larger. How very odd indeed!)
In my mind, introducing dormancy fees is a 'win-win-win' strategy for Barclaycard and its credit-card rivals. First, cardholders who close rarely used accounts in response to the new fee will help to bring down Barclaycard's ongoing expenses. Second, lethargic or unresponsive cardholders will pay this new fee, helping to boost the group's income. Third, customers who start using their Barclaycard more often will generate more merchant fees and could pay interest if they fail to repay each monthly bill in full.
Profits are being squeezed right across the credit industry, so lenders are keenly on the lookout for ways to coax more cash from their customers' pockets. As you know, the Bank of England has raised its base rate four times since last August, which puts pressure on lending margins. Hence, it looks increasingly likely that credit-card companies will take ever-more steps to maintain their record-breaking profits.
Thus, in all probability, we customers face higher interest rates and a whole new layer of fees to come. So, please do pay close attention to your monthly credit-card statements, particularly those annoying leaflets that are packed with small print. Otherwise, if you take your eye off the ball, you might end up paying a charge which you could easily have dodged by closing your account or by jumping ship to a new credit card!
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