New rules to bump up credit card rates

Credit card rates are likely to rise in coming weeks, with fewer customers being offered the advertised rates, under changes to consumer credit laws.

A European Commission directive, to be rolled out in the UK from February 1, will give credit card customers clearer information before they sign up, including a new “representative” APR giving a truer picture of the total cost of credit.

But while these measures will increase transparency, observers say they could have the perverse effect of bumping up headline rates.

“The basic formula for the calculation of an APR will not change,” said UK Payments Administration, the credit card industry body.

“However, some of the underlying assumptions – for example, the amount
of credit to be borrowed – will change. This means that, for credit cards
with an annual fee, APRs will increase overnight, perhaps by 1 or 2 per cent, despite the fact that interest rate or fees on the card have not changed.”

There are also concerns that a quirk in the way the directive is rolled out will mean that fewer UK customers obtain the advertised card rates.

Currently, UK card issuers must offer their typical APR to two thirds of applicants, with the remainder either declined or offered a higher rate. However, the EU only requires this proportion to be 51 per cent.

“This means nearly half of all applicants, instead of a third, will not have a clue what rate they will get,” said Tim Moss, head of loans with price comparison website

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