Credit-card borrowers have been warned not to miss even the smallest monthly payments, after it emerged that banks are cutting credit limits by thousands of pounds for late payments of just £30.
According to consumer group Which?, there has been a rise in the number of credit card customers who have had their credit limits drastically reduced as the result of minor transgressions, or failure to use their card frequently.
“We’ve seen a number of customers who only use their card once or twice a year to purchase large ticket items who have had their limit cut,” said Vera Cottrell, Which? principal policy adviser. “Banks say this is because of responsible lending law and new capital requirements, which mean that they must treat a credit limit – whether used to the max or not – as an outstanding loan. It costs less for them if customers have lower limits.”
One reader contacted the Financial Times after her NatWest credit-card limit was cut from £2,500 to £300 following a number of small late or missed monthly payments.
The bank responded by saying that the reduction was in line with credit limit decreases, and pointed out that a number of other customers have had similar cuts to their credit limits. It insisted that a suddenly reduced credit limit would have no effect on a customer’s credit rating and would not affect the customer’s ability to apply for a new card.
Consumer groups have called for banks to contact customers at risk of losing their existing credit limits to inform them of the impending decision – and give them the chance to alter their usage.
However banks, including NatWest, said they already offered services such as text messages to alert customers that a bill was due, and details of how to set up a direct debit.
Since the financial crisis of 2008, banks have tightened lending across their product ranges, demanding extra security from borrowers, and setting higher rates of interest for those unable to meet exacting criteria.
But there is no uniform set of guidelines for changing customers’ credit card limits – the banks say each case is treated on an individual basis. As a result customers of different providers may experience variance in service – and are advised to explain their circumstances to their card issuer if their limit is cut. According to consumer rights groups, in some cases, this could result in an increase to the new limit.
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