Outstanding Credit Card Debt Could Rise to Record Levels in 2010
Recent research by accountancy firm PricewaterhouseCoopers has predicted that up to 9% of all credit card balances could be bad debt by the end of 2010.
This would represent a significant increase in the levels of bad credit card debt on the current figure of around 6%, and is despite an 8% drop in the number of credit cards in issue, and a 3% reduction in credit card borrowing in the last year.
Bad debt factors
The expected increase in levels of bad credit card debt can be attributed to many factors, including;
- Redundancies
- Reduced working hours
- Salary freezing
- Pay reductions
With over £3billion being written off in the past year by credit card companies and this figure set to rise in 2010, we believe that bad debt factors will have an impact on credit card customers.
There are a number of possible avenues for the credit card companies to explore in trying to recoup much of this bad debt;
- Higher rates of interest on credit card balances
- Annual or monthly credit card fees
- Introduction of premium features which carry a monthly charge
Credit card circulation in decline
As mentioned earlier, the number of credit cards in circulation in the UK has fallen by 8% in the last year and with lenders becoming increasingly concerned about the high levels of bad credit card debt, this is a trend which looks set to continue.
Credit card companies have already started to take a more careful approach to lending and this is evident from the reduced amounts of direct mail with credit card application forms and introductory offers.
One major issuer of credit cards has taken the step of only giving cards to customers who already have a current account with them, and this action is indicative of the industry’s desire to reduce the exposure to high levels of bad credit card debt.
The future of credit cards
The economic crisis has prompted the government to examine all areas of financial services and credit card lending is no exception.
In October 2009 proposals were published by the government to address what they consider to be ‘unfair’ credit card terms such as;
- Raising credit limits without the borrower’s prior consent
- Applying higher interest rates to existing balances
- Small minimum monthly repayments that do little to pay off the outstanding balance
Our view is that the unprecedented impact of the global financial downturn is going to change credit card lenders’ policies and consumer behaviour in 2010 and far beyond.
(Source: http://www.ukmediacentre.pwc.com/Content/Detail.asp?ReleaseID=3425&NewsAreaID=2 Pricewaterhouse Coopers 8/11/2009)
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