Beware - new annual fees for unused credit cards
Defaqto, the personal finance analyst recently released surprising information regarding fees which may be faced by credit card customers who don’t use their credit cards enough.
Beware - new annual fees for unused credit cards
Providers are expected to keep as tight a lid as possible on the new charges as they will undoubtedly be seen as an unpopular move.”
Dormancy fees will apply to accounts which aren’t as active as the credit card companies would like, according to the analysts.
Annual fees for disuse
A £35 fee has been imposed on customer’s credit accounts by Lloyds TSB for those who don’t use their cards at all and Barclaycard is believed to be working on an annual fee of £10 to £20 on dormant credit cards. This is a shame as many who apply for credit intend to use it for emergency purchases rather than regular spending.
Defaqto sees dormancy fees as ‘inevitable’ and blames the current economic climate and rise of pre-paid and debit cards for the new trend towards charging inactive customers. The financial analyst is expecting more and more credit companies to follow suit and for such fees to become commonplace.
Be vigilant – you’ll receive formal notice
Due to finance law customers will be formally told about any fees which they could face and be given the option of either opting out or closing their accounts. However, Defaqto have warned of a ‘quiet spread’ which could mean that companies try to keep as tight a lid on the new charges as possible as they will undoubtedly be seen as an unpopular move.
Other financial experts are saying that the credit card company’s plans to recoup losses by introducing annual fees could actually backfire on them. There is every chance that customers will switch to pre-pay or debits cards entirely and choose to build their credit ratings with small loans instead of choosing a credit card if the new fees are introduced across the board.
Reasons for the fees
Barclaycard has stated that the new fees for unused accounts are due to fact that costs for dormant accounts are usually carried by regular-use customers.
However, so far they haven’t said how charging the dormant card holders would improve matters for regular-use card holders.
Surely they would be in for a discount if they were no longer paying for dormant card holder accounts?
Speculators say the new moves won’t benefit anyone but the card companies.
Defaqto also said that credit card providers who are backing annual dormancy fees are doing so to recoup some of the losses from last year’s ‘penalty fees’ debacle.
The Office of Fair Trading ruled that penalty fees must be limited and as a resultant companies chose to raise interest rates and introduce ‘stealth’ fees such as the dormancy fee.
Morgan Stanley and Co-operative Bank have also joined the league of card companies who are planning to introduce dormancy fees and independent experts have revealed that 1 in 8 credit card providers now charge an annual fee at least.
Analysts say the annual highest fee on the UK market is £275 per year and the lowest until recently was £24.
In the past few years credit card companies have also taken to closing long dormant accounts and experts are warning anyone with many dormant accounts to close them as having unused credit (but access to a large amount of it) can be very bad for a customer’s credit rating, dormancy fees aside.
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