Shoppers cut their credit cards after paying off huge amounts of debt with locked savings while service providers curb spending limits and offers.
Credit card giant Barclaycard is facing an exodus of loyal customers after slaughtering the credit limits of more than 100,000 spenders by as much as 99 percent — without warning.
Now banking experts say more credit card companies may follow suit on fears that unemployment will peak later this year as Britain emerges from the pandemic.
Barclaycard faces mass exodus of loyal customers after slaughtering credit limits of more than 100,000 spenders by as much as 99%
The latest figures from trade banking body UK Finance show that credit card use has fallen sharply.
In January, 196 million credit card transactions were made – down about a third compared to December, and 31 percent less than in January of a year ago.
Meanwhile, national credit card debt fell from £71.9 billion to £54.7 billion last year, according to the Bank of England.
Her research also shows that the amount of credit lenders are happy to extend has decreased since the beginning of the year. The average credit limit at the end of last year was about half of what was available at the start of 2020, according to credit data firm ClearScore.
Market stats already point to a decline — there are just 125 cards available 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 had been writing to hordes of customers to let them know their credit limit had been reduced to at least £250.
The move has since led to a customer service meltdown, with some waiting over an hour to speak to the provider on the phone. Dozens of angry customers say they have canceled their BarclayCard cards after decades of holding them.
Rosemary Senior has reduced the borrowing limit from £12,000 to £250
But the provider is now facing questions about why it had to make such heavy 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 slashed some of them this month by more than £20,000, prompting fears that it lent customers too much in the first place.
It comes just six months after the company admitted it “may” set limits too high for thousands of cardholders.
An internal review found that it did not take into account all of the financial circumstances of some applicants.
Thousands of customers have received an average of £230 in refunds for interest, fees and costs as a result.
In December, parent bank Barclays was fined £26m for failing to help borrowers who were in arrears or were in financial difficulty. It has paid out nearly £273m to 1.5m of these clients in the last four years.
Barclaycard insists this latest round of reductions is because it takes into account the ‘continuing economic impact of the coronavirus’ and how this could affect customers’ ability to manage their borrowing.
It also takes a stronger stance against other forms of unsecured debt, including personal loans and some auto financing plans.
If it goes from one extreme to the other, it indicates that Barclaycard lent an inappropriately high number of customers in the first place.
But Money Mail has spoken to Barclaycard holders whose credit limit has been lowered – although they haven’t seen any changes in their circumstances.
Consumer champion Baroness Rose Altman says: “It is time for banks to start taking unsustainable debt more seriously, but this appears to have been a ruthless approach.
If a customer’s finances are not affected by Covid-19, what is the reason behind this?
“If it goes from one extreme to the other, it indicates that Barclaycard lent an improperly high number to customers in the first place,” says Martyn James, of complaints website Resolver.
James Daly, of consumer group Fairer Finance, adds: ‘It’s possible that Barclaycard has identified that it has given too much credit to some customers and is trying to rein them in again.
“I think other banks can start to reduce their credit limits as well.”
The average UK credit card limit is currently between £3,000 and £4,000, according to comparison site Uswitch.
Henry Edmunds, 70, receives an annuity of £1,700 a month and had a credit limit of £10,500 before it was reduced to £250.
The retired truck driver has had a Barclaycard since 1978 and used it for large, one-time purchases, like a TV or washing machine.
He has two other credit cards – a £7,500 limit on his Lloyds card and £500 on his Debenhams card.
Henry, who lives with wife Faye, 58, in Monmouth, says: “Over the years Barclaycard has increased my credit limit even if I don’t ask for it – sometimes by £1,000 at a time. I’m pissed that after 40 years he doesn’t seem to care. with me.
Rosemary Senior, 64, is unemployed and her borrowing limit has been reduced from £12,000 to £250.
The mother-of-one, who was laid off from her management job at a funeral director at the start of the pandemic, has income from a private pension and rental property, and has only missed a payment once.
“I used my credit card because it offers consumer protection, but reducing the credit limit to £250 makes it useless for holidays and large purchases,” says Rosemary, who lives near Bath.
The Office for Budget Responsibility projects that 2.2 million people – 6.5 percent of all workers – will be out of work by the end of 2021. The furlough scheme is also due to end in September.
Personal finance analyst Sarah Coles, of investment service Hargreaves Lansdowne, says: “Barclaycard can make decisions based on what it thinks the economy will be like by the end of the year. By then, there will be a significant amount of pain and banks will likely try to reduce their exposure to risk. Less lending.
However, “I think we’re in a much better position than we were six months ago, and I don’t think that’s going to happen across the banking sector,” says Laith Khalaf, an analyst at investment platform AJ Bell.
Barclays’ annual report said income of its UK credit card division fell 24 per cent to £1.5 billion “as lower levels of borrowing and spending led to lower interest-earned lending balances”.
“Sometimes there is no rhyme or reason to lenders’ decisions,” adds Rebecca O’Connor, of investment broker Interactive Investor. But people spend less on credit, which can lead to a decrease in the availability of credit.
It is understood that the amount of revenue generated by a customer does not influence Barclaycard’s lending decisions.
Rivals Santander and Virgin Money say they are not cutting any credit limits, to support those hit hardest by Covid-19.
Barclaycard has confirmed that some customers can appeal the change if their new minimum balance is greater than their highest balance at any time within the past two years; Others will have to wait six months to apply for more credit.
A spokesperson says: ‘If we think we may have set a customer’s credit limit too high, we will apologize and set the record straight. However, this is not the case for these dips.
A spokesperson for the FCA says: “Setting credit card limits is a business decision for businesses.
“However, we do expect companies to assess affordability for customers, including whether credit lines are appropriate.”
f.parker@dailymail.co.uk
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