Borrowing on 'rip-off' credit cards slumps

Credit card borrowing has slumped dramatically in the wake of higher interest rates and the infamous "rip-off" gaffe by Barclaycard boss Matt Barrett.

Figures from the British Bankers' Association today revealed that net borrowing after repayments rose by £237million in January, a 65 per cent decrease on the same month a year ago.

It was a similar story in the final two months of last year. Credit card borrowing in November was 92 per cent down on a year earlier, while the drop in December was 62 per cent. BBA director of statistics David Dooks said cardholders were clearing their bills almost as quickly as they were using their cards in a sign that consumers have wised up to the high rates of interest charged by many banks.

The figures suggest millions are increasingly shunning credit cards in favour of cheaper forms of borrowing such as mortgage equity withdrawal. The most expensive credit cards charge nearly 30 per cent annual interest compared with less than five per cent for some equity release loans.

The fall also follows Mr Barrett's recent admission that he would never borrow on a credit card because they were too expensive, and he advised his four children to follow his lead.

A report from the treasury select committee in December branded credit card companies "deceitful and misleading". Simon Rubinsohn, economist at fund manager Gerrard, said: "There is no doubt that there is a trend towards lower credit card borrowing due to a combination of bad publicity, rising interest rates and cheaper alternatives. People are reading headlines about a consumer debt crisis and increasingly focusing on what they can afford. For many, leaving their plastic in their wallet and choosing a cheaper form of borrowing is a no-brainer."

Credit cards have been a rich source of income for the banks in recent years.

Analysts have calculated that the big four - Lloyds TSB, Barclays, Royal Bank of Scotland and HSBC - made £50,000 in profits for every minute of last year, with credit cards accounting for a substantial slice of that.

Profits at Britain's biggest credit card company Barclaycard jumped by 17 per cent to a record £722 million last year.

They have benefited from consumers' willingness to take on unprecedented levels of debt. According to Apacs, the banks' trade body, Britons carried out five billion transactions on their plastic, worth a total of £230 billion, last year.

While debit cards played a significant part, the majority of transactions were on credit cards. Today's figures suggest the days of the banks racking up hefty profits from credit cards may be coming to an end.

Banks and other credit card providers are also bowing to consumer pressure to make their offers transparent, with most undertaking to introduce summary boxes giving clear details of their terms and conditions by 1 March.