Response to Gordon Brown ordering credit card companies to stop hiking rates

Published:

11/11/2008

Topic:

Press Release,Money,Credit Cards

Clare Francis, site editor of moneysupermarket.com said: "Gordon Brown appears to have forgotten some basic economics since he left the Treasury.  He might be able to influence the supply of credit, to keep card firms lending, or the price of credit, the APR, but he is unlikely to be able to control both.

"Whilst some of the big UK credit card issuers are potentially in his sphere of influence - such as HBOS and Barclaycard, the biggest issuers MBNA and Capital One are US businesses.  Traditionally they have funded their credit card debt by securitising it and this market is now either closed or considerably more expensive.  In addition to the increased price of actually raising the money to lend, the firms also bear the costs of administering a rising tide of consumers defaulting on their debts.  And Mr Brown wants to make it hard for them to do this too.

"The likely result of the Government's intervention in the market is that credit card firms will, in effect withdraw from lending.  This means it will become significantly harder to get a new credit card, and the credit limit will be lower.  Providers are also likely to try and recoup margin by increasing other fees and charges.  However, the scope for doing this has already been limited by the OFT capping penalty fees.

"My advice for consumers who think they may want a new credit card is to apply now, because if Mr Brown gets his way they will become increasingly difficult to find.  And get in quick to grab a good value balance transfer rate, or introductory rate, because if "back end" APRs are forced down these sweeteners at the front end will disappear too."

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