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Saturday 28th of March 2009
April 4, 2008

Tightening of lending criteria means 10,000% interest on credit cards

by Kay Murchie

Lenders have been scrapping cheap mortgage offers with internet bank, first direct, announcing earlier this week that it has temporarily withdrawn all its mortgage products as it tries to clear a backlog of customer applications.

Alliance & Leicester and Scottish Widows have both curtailed their product ranges and Northern Rock recently set its new mortgage rates at uncompetitive levels, in a conscious effort to drive away new business.

Furthermore, the Co-operative Bank has withdrawn its two-year mortgage deals while Lehman Brothers, the US investment bank, is also withdrawing from the UK mortgage market. The Halifax warned that its mortgage costs are set to increase.

Credit card customers could now be charged up to 10,000% interest on a balance of 1p. Internet bank Egg announced it is increase the minimum interest charge on its cards from 50p to £1 from May 2008.

Consequently, if you pay off your credit card in full and leave a balance of 1p, this will be ‘topped up’ to £1 (effectively a 10,000% interest rate).

Egg recently withdrew the credit cards belonging to 161,000 customers. It claimed that the customers, who represent 7% of its 2 million credit cardholders, had a ‘higher than acceptable risk profile’. However, all of those affected have excellent credit ratings.

A spokesperson for Egg said that the increase would only affect those customers with a balance of £70 or less on their card, less than 1% of its UK customer base.

The majority of credit card providers have a minimum interest charge on their cards - Bank of Scotland, Egg, Halifax and Intelligent Finance all have a minimum charge of 50p. So, if you pay off all of your credit card balance in any given month, the interest charge will be increased to the 50p minimum payment.

Other banks that levy the £1 charge include Barclaycard who has one of the best standard interest rates on the market of 6.8% on its Simplicity Visa card.

Sean Gardner of Moneyexpert.com, the price comparison website, said that the details of the minimum charge were ‘typically deeply hidden’ in the terms and conditions of credit card applications.

Mr Gardner added that one of the banks to reduce credit limits was the Co-op, which has admitted that up to 50,000 of its customers may have had their limits cut this year.

This announcement is a further indication that, as well as lenders, credit card companies are tightening their lending criteria and increasing rates following the credit squeeze.

Figures from the Bank of England show that the average rate on credit cards has risen over the last 12 months from 16.98% to 17.67%.

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  • Egg withdraws credit cards for riskier clients
  • Egg refusing to back down over withdrawal of credit cards
  • Over 3 million Britons juggling 5 or more credit cards
  • Record sum spent on credit and debit cards last year
  • Banks cancelling credit cards belonging to ’good payers’
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