Credit card customers are likely to feel the squeeze as companies try to recover the £1 billion per year which will be lost as a result of a cap being introduced for penalty charges.
The Office of Fair Trading introduced the £12 cap, leaving a £1 billion shortfall for card companies which PricewaterhouseCoopers (PWC) says will be made up through increased charges and fewer zero per cent deals.
A report, released by PWC, says card companies are likely to make up the shortfall in this way, although there is disagreement over what effect an annual charge will have on consumers.
Some firms are not concerned that they may lose the custom of non-profitable card holders, while others do not want to anger these customers as they see an opportunity to sell other financial products to them.
Richard Thompson, one of the report’s authors, said he finds it difficult to see how the firms will be able to recoup the lost revenue.
“We are likely to see a waterbed effect, whereby charges pushed down in one area pop up somewhere else,” he said.
“Card issuers would have to levy annual fees costing the average credit card user £35 a year to recoup the potential £1bn loss.
“If lenders tried to recoup this through interest rates alone, we would see APRs increase by two percentage points on average,” added Mr Thompson.
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