Credit card holders paying through the nose for cash

Research from USwitch.com suggests that credit card holders are paying much more in interest on cash withdrawals than they were paying two years ago and they may not even realise it. The Department For Trade and Industry (DTI) reformed the Consumer Credit Act in May 2005 to make it easier for consumers to compare credit card products and select the most suitable one. However, according to USwitch consumers could now be paying as much as £1.45 billion in interest on cash withdrawals a year, compared with £1.12 billion 22 months ago.

Since the DTI’s changes cam into force most major credit card providers have increased cash withdrawal rates by 30 per cent, which means that 6.6 million consumers are paying £334 million in interest on their credit card bills. Consumers may only have noticed a 2.96 per cent increase in credit card interest rates rather than the 6 per cent increase that exists in real terms. USwitch suggests that card providers have imposed stealth increases in the cash withdrawal rate under cover of the Consumer Credit Act reforms.

The reason for this is that the annual rate that banks display for cash withdrawals, unlike the old APRs, does not take into account monthly interest, charges and fees, so cash rates may have increased by as much as 9.73 when the additional borrowing costs are taken into account.

Nick White, uSwitch.com’s Director of Financial Services said: ‘Consumers could be forgiven for thinking that they are being treated as the banking industry’s personal ATM. It’s easy to see why the major banks continue to announce record profits, which this year alone totalled in excess of £40 billion16, when the welfare of their customers continues to take a backseat to shareholder profits. We challenge the OFT to investigate whether these rates amount to ‘usury’ or extortionate lending.