Credit Card Debt Help

Future of Credit Cards under Threat

Written by on 16 November, 2009

With bad debts reaching historic highs in the United Kingdom, the current credit card business model is not sustainable and is likely to change, a new report has claimed.

Accountancy firm PricewaterhouseCoopers (PwC) has released their annual report on consumer credit in the United Kingdom for 2009. The report discussed prospects of reductions in credit products available and increases to interest rates, fees and charges for credit services.

There has been a marked reduction in the availability of credit since the economic downturn, including credit cards, as well as both secured and unsecured loans. The British Banker’s Association also recently released figures showing that the balance of credit card borrowing has fallen by 3% over the past year to £64 billion, while the number of credit cards currently issued to consumers has declined by 8%. These figures are back to credit levels not seen since 2003.

Although the volume of credit cards in circulation has clearly dropped during the economic crisis, the findings from the PwC report showed an increase in the average debt per card. This now surpasses a record high average of £1,000 which is a significant increase of 5%.

In addition, several changes are due to come into effect in 2010 across the credit industry as the Consumer Credit Directive is implemented. This includes tighter regulations and more pressure on the lender to provide adequate explanations about the credit arrangement entails. While these new regulations aim to help consumers, it is also predicted in the report that the cost of credit could increase. It is expected that annual or monthly fees could become standard across the credit industry, from paying for access to a credit card to increased charges to access premium benefits.

This means some consumers may face little options but to opt for other avenues of credit, such as loans. However, unsecured lending has fallen by 39%, while secured lending has fallen by 79% since the economic crisis. Unless lenders increase the availability of credit as the demand grows, there may difficulty for the consumer both receiving credit, as well as higher costs.

The PwC ‘Precious Plastic’ report also found consumers are less confident in their ability to handle personal debt. The results of their annual Credit Confidence survey assessed the responses from over 2,000 UK citizens attitudes to consumer credit and found that only 32% of respondents strongly agreed with the statement I am able to make repayments on all the outstanding credit I have. This makes a stark contrast to the results of last year’s survey, which found 56% of respondents strongly agreeing that they would be able to make payments on their debt.

This news comes several days after The Insolvency Service released statistics from the third quarter of 2009, showing a substantial 28.2% growth in personal insolvencies. The PwC figures add to concerns that despite seeing some recovery to the economy, the level of personal insolvencies in the United Kingdom may continue to increase into the new year.

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