Monday, Nov 09, 2009

About time too.

Telegraph: Credit card rates set to rise

Lenders' current business models are ''unsustainable'' due to increasing bad debts, funding constraints and the toughest economic conditions for a generation, PricewaterhouseCoopers said.
It said large scale change within the sector was inevitable during the coming few years, with credit cards likely to be transformed from borrowing tools into payment ones.

Posted by tyrellcorporation @ 08:09 AM (1245 views)
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7 Comments

1. britishblue said...

This has already started to happen. Some people who have had impeccable credit ratings have seen interest rates on outside balances rise to 30%. Which is extortion. But if the government let credit card companies get away with it and they either have to charge customers or go bankrupt, what choice is there?

What' s the relevance to the British economy and house prices? Many small businesses over the last year have suddenly had overdrafts removed without warning from the banks, creditors reduce payment terms combined with decreased sales. In order to pay for goods and their staff, Many 'good' people have been forced to borrow from their credit cards to replace other forms of borrowing that have been removed.

Whilst the saintly savers on this site would cry in unison that, 'borrowers are bad' and would condemn them out of hands as nasty debtors, these people/ businesses are just pawns in a greater board game. Credit card interest rates of 30% extortion and are going to have a severe effect on this part of society. I would expect this would increase the amount of small businesses that are put under next year.

I don't have any facts to back it up but it would seem likely that people who have overstretched on their mortages will also be a group that have racked up credit cards debts, otherwise they would have lower LTV ratios. The effect of credit card interest charges being hiked from the popular zero balance transfer rates to rates of 30% being common is going to be like a whole new tax burden on large sections of society. Just as there is the argument that some people are better of on the dole rather than working, there will be the argument that employed people who could manage their debts on normal credit card interest rates, now should throw the towell in and go bankrupt.
Couple all of this with the impending VAT rise and a future date when QE goes into reverse, along with a change of government and one can see a perfect storm forming on the horizon for house prices and a lowering of the standard of living for a large part of the working population.

Monday, November 9, 2009 08:35AM Report Comment
 

2. alan said...

@britishblue,

There are a few charging around 34%, up to 39.9% (Vanquis). Unfortunately, they spam me all the time.....

Monday, November 9, 2009 09:03AM Report Comment
 

3. cynicalsoothsayer said...

Borrowers that can't repay are bad. To be charging 34% to 39.9% must mean there are some people who are that desperate!

Anyway, this is likely to hasten the HPC as it will force more into default which will ripple into more repossessions...

Monday, November 9, 2009 10:27AM Report Comment
 

4. stillthinking said...

This is zombie bank style activity. To recoup their losses on bad debts they have to increase the debt servicing costs of all, which creates social rejection of unfairly priced debt and a collapse in borrowing, nobody wants to join the debt club while it is attached to huge losses. This collapse in borrowing collapses the economy.

This is Japan's failure and the reason why the good banks and bad banks need to be split off, because only a good bank can provide loans at interest rates suitable for the current economy. Essentially because people have a choice about paying off existing losses, and that choice is do you involve yourself by being in debt. But by splitting the bad bank off the government can deny a choice of involvement in paying off bank losses, because you will pay through taxation/lower services, and your decision to accept further debt will be unaffected. Otherwise the loan market is critically affected, there is both a lack of funds and a lack of desire for unnecessarily expensive debt.

Bit unfair in some ways to drag everybody into bad debt repayment but that is the only way out. Probably why Darling is in such a panic because despite the taxpayer -already- guaranteeing losses to prevent the requirement of the banks to pass on losses in this way, that is precisely what they are doing, sinking the economy in the process.

Monday, November 9, 2009 12:53PM Report Comment
 

5. stillthinking said...

This is also the tipping point that Iceland went through. The losses were such that impossible for the banks to merely up rates and recover their losses from still standing debtors, so losses had to go straight to the taxpayer for a banking recovery. Sweden also went straight to the taxpayer, which recovered their economy, which commensurately prevented an economic meltdown, resulting in smaller overall losses.

Labour are frozen rabbits in the headlamps of all this, in denial, their main policy seems to just be "please don't do it banks, please" although what else would any bank do? Even the discussion of bad/good bank slip slides around the reality, somehow we are given to believe that all is needed is to break the banking sector in two, but really the creation of bad banks means losses go straight to timmy taxpayer.

Monday, November 9, 2009 01:02PM Report Comment
 

6. mark wadsworth said...

ST, "the creation of bad banks means losses go straight to timmy taxpayer"

Not necessarily, if the govt weren't so gullible and not so obsessed with propping up house price bubble, they would allow bondholders etc to bear the losses (which, to some extent, is what they are doing with Northern Rock). See also CIT Group.

Monday, November 9, 2009 02:45PM Report Comment
 

7. mark wadsworth said...

Sorry, that should read "Billy Bondholder".

Monday, November 9, 2009 02:45PM Report Comment
 

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