Shoppers are cutting up their credit cards after paying off vast amounts of debt with lockdown savings while providers rein back spending limits and offers.
Credit card titan Barclaycard is facing a mass exodus of loyal customers after butchering the credit limits of more than 100,000 spenders by up to 99 per cent – with little warning.
Now banking experts say more credit card firms could follow suit over fears unemployment will peak later this year as Britain emerges from the pandemic.
Barclaycard is facing a mass exodus of loyal customers after butchering the credit limits of more than 100,000 spenders by up to 99%
The latest figures from banking trade body UK Finance show credit card use has plummeted.
In January, 196 million credit card transactions were made – down almost a third compared with December, and 31 per cent lower than in January last year.
Meanwhile, national credit card debt has plunged from £71.9 billion to £54.7 billion in the past year, according to the Bank of England.
Its research also shows the amount of credit that lenders are happy to offer has dropped since the start of the year. The average credit limit at the end of last year was about half that available at the start of 2020, according to credit data firm ClearScore.
Market statistics already suggest a decline — with the number of cards available standing at just 125 today, down from 147 in April 2020 and 165 in 2019, according to analysts Moneyfacts.
Barclaycard is facing a growing backlash after Money Mail last week revealed how it was writing to legions of customers to let them know their credit limit had been reduced to as little as £250.
The move has since resulted in a customer service meltdown, with some waiting for more than an hour to speak to the provider on the phone. Scores of angry customers say they are cancelling their Barclaycards after decades of holding one.
Rosemary Senior has just had her borrowing limit cut from £12,000 to £250
But the provider is now facing questions over why it has had to make such heavy-handed cuts on such a scale.
The average UK credit card limit is between £3,000 and £4,000, according to comparison site Uswitch. But Barclaycard has this month cut some by more than £20,000, prompting concerns that it has loaned customers too much in the first place.
It comes just six months after the firm admitted it ‘may have’ set limits too high for thousands of card-holders.
An internal review found that it had not considered all of the financial circumstances of some applicants.
Thousands of customers received refunds of £230 on average for interest, fees and charges as a result.
In December, parent bank Barclays was fined £26 million for failing to help borrowers who had fallen into arrears or were experiencing financial difficulties. And it has paid out almost £273 million to 1.5 million of these customers in the past four years.
Barclaycard insists this recent round of cuts is because it is taking into account the ‘ongoing economic impact of coronavirus’ and how this may impact customers’ ability to manage their borrowing.
It is also taking a stronger stance against other forms of unsecured debt, including personal loans and some car finance plans.
If you go from one extreme to the other, it suggests Barclaycard has loaned an inappropriately high figure to customers in the first place
But Money Mail has spoken to Barclaycard holders who have had their credit limit slashed — despite having seen no changes to their circumstances.
Consumer champion Baroness Ros Altmann says: ‘It’s about time banks started taking unaffordable debt more seriously, but this does seem to have been a heavy-handed approach.
‘If a customer’s finances haven’t been impacted by Covid-19, then what is the reasoning behind it?’
Martyn James, of complaints site Resolver, says: ‘If you go from one extreme to the other, it suggests Barclaycard has loaned an inappropriately high figure to customers in the first place.’
And James Daley, of consumer group Fairer Finance, adds: ‘It’s likely Barclaycard has identified that it’s given too much credit to some customers and is trying to rein them back in.
‘I think other banks could start reducing their credit limits, too.’
The average UK credit card limit is currently between £3,000 and £4,000, according to comparison site Uswitch
Henry Edmunds, 70, has a monthly pension of £1,700 a month and had a credit limit of £10,500 before it was slashed to £250.
The retired lorry driver has had a Barclaycard since 1978 and used it for big, one-off purchases, such as a TV or washing machine.
He has two other credit cards — with a limit of £7,500 on his Lloyds card and £500 on his Debenhams card.
Henry, who lives with his wife, Fay, 58, in Monmouth, says: ‘Over the years Barclaycard has increased my credit limit even if I haven’t asked for it — sometimes by £1,000 at a time. I am furious that after 40 years it doesn’t seem to care about me.’
Unemployed Rosemary Senior, 64, has just had her borrowing limit cut from £12,000 to £250.
The mother-of-one, who was made redundant from her job in administration at a funeral director at the start of the pandemic, has an income from a private pension and a rental property, and has missed a repayment only once.
Rosemary, who lives near Bath, says: ‘I used my credit card because it offers consumer protections, but reducing its credit limit to £250 makes it useless for holidays and larger purchases.’
The Office for Budget Responsibility predicts 2.2 million people — 6.5 per cent of all workers — could be unemployed by the end of 2021. The furlough scheme is also due to end in September.
Personal finance analyst Sarah Coles, of investment service Hargreaves Lansdown, says: ‘Barclaycard could be making decisions based on what it thinks the economy will be like by the end of the year. By then, there will be an awful lot of pain and banks are likely to try to reduce their exposure to risk by lending less.’
Yet Laith Khalaf, analyst at investment platform AJ Bell, says: ‘I think we are in a far better situation than six months ago, and I don’t think this is going to happen across the banking sector.’
Barclays’ annual report said its UK credit card division’s income fell 24 per cent to £1.5 billion ‘as reduced borrowing and spending levels resulted in a lower level of interest‑earning lending balances’.
Rebecca O’Connor, from the investment broker Interactive Investor, adds: ‘Sometimes there’s no rhyme or reason for lenders’ decisions. But people have been spending less on credit, which can trigger a reduction in credit availability.’
It is understood the amount of revenue generated by a customer does not influence Barclaycard’s lending decisions.
Rival firms Santander and Virgin Money say they are not reducing any credit limits, to support those hit hard by Covid-19.
Barclaycard confirmed some customers can appeal the change if their new lower limit is more than their highest balance at any point over the past two years; others will have to wait six months to apply for more credit.
A spokesman says: ‘If we believed that we may have set a customer’s credit limit too high we would apologise and put things right. However, that’s not the case for these decreases.’
A spokesman for regulator the Financial Conduct Authority says: ‘Setting credit card limits is a commercial decision for firms.
‘However, we expect firms to assess customers affordability, including whether credit limits are appropriate.’
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