Banks concerned by the rising default rate on credit card debt are penalising customers who use their cards to obtain a cash advance.

“The action of using credit cards to take cash out is seen by banks as a warning sign that a customer is struggling,” said Andrew Hagger at Moneynet, a personal finance consumer group.

For many consumers unable to meet rising household bills and denied access to new loans, credit cards have become the last remaining source of funds available.

According to Uswitch.com, the price comparison website, 1m consumers are now using cash withdrawn on a credit card to make mortgage repayments, and a further 700,000 are estimated to be using the money to pay off debts held on another credit card.

These consumers have been penalised by interest rates as high as 32 per cent. Over the last three years, average cash advance interest rates on credit cards have jumped by more than 40 per cent, to 29.97 per cent.

Consumer groups say banks are profiting from vulnerable consumers, many of whom are unaware that withdrawing money incurs higher charges than making purchases on a credit card. According to Ûswitch, one in 10 consumers believe using a credit card in an ATM machine is the same as using a debit card.

However, as banks become increasingly keen to distance themselves from riskier customers, experts expect the higher charges to continue, along with increasingly tight lending criteria.