Lower Income Customers Face Hardship from Barclaycard Interest Hike

The largest credit card company in the UK is raising the interest rates it charges to customers already struggling to repay their debts. The move is clearly controversial since it stands to reason that it would cause genuine hardship for those consumers already stumbling beneath heavy debt loads and punishing interest in addition to their debts that they must pay. An increase in the number of consumers entering into highly effective debt solutions such as Individual Voluntary Arrangements (link!) and Debt Management Plans (link!) is expected as a result for those consumers who do not wish to undergo a Bankruptcy (link!).
The irony is that the Barclaycard decision comes out in direct contrast to what the Government has asked lenders in regards to playing fair with those in debt, particularly credit card customers. The fear is that now those Barclaycard customers who are being further punished for debt will be increasinly more vulnerable to unscrupulous lenders that prey on the financially unfortunate.
The decision comes from Barclaycard as part of their new policy of “risk-based pricing” that is designed to charge the poor and customers who are in debt pay more than those with greater financial ability to repay any credit they take out. This policy is spreading throughout the entire credit industry and means that a person with a good income who borrows £1,000-£3,000 will pay 15.9% in interest whereas a person who is considered “high risk” would end up paying 20% for the exact same amount being borrowed.
Nearly all the UK’s primary banks have been raising interest rates on credit cards in 2009 even as the Bank of England reduced the base rate to only 0.5 percent. Along with these moves, the credit card lenders have added other lesser noticed fees such as fees for using one’s card overseas.
The extremely difficult financial circumstances that these interest rate hikes put customers into have led to an alarming number of ‘debt suicides’ where UK citizens have taken their own lives in response to the overwhelming stress of debt.
The sitation is society wide and means that many people will find it increasingly difficult to take out credit on reasonable terms when they are at a lower income level. Those who are caught in the “risk-based pricing” scheme will see much more difficult credit arrangements coming their way. The financial crisis ends up punishing those at the bottom who already struggle with debt by making debt even more expensive to these people who may need it more than those with better incomes who do not actually need the credit in order to make ends meet.
According to what’s been said by the banks recently, the main focus will be on those who have experienced financial changes such as job loss or poor health leading to loss of work. These people will be targeted for potential interest rate increases since they are viewed as the highest risk for entering default.
Barclaycard does claim that its ‘early assistance’ scheme has been designed to help those who are heading towards default after income changes and that since the program’s early days this March, it has helped 11,500 cardholders, but the overall results will take time to see.

The largest credit card company in the UK is raising the interest rates it charges to customers already struggling to repay their debts. The move is clearly controversial since it stands to reason that it would cause genuine hardship for those consumers already stumbling beneath heavy debt loads and punishing interest in addition to their debts that they must pay. An increase in the number of consumers entering into highly effective debt solutions such as Individual Voluntary Arrangements and Debt Management Plans is expected as a result for those consumers who do not wish to undergo a Bankruptcy.

The irony is that the Barclaycard decision comes out in direct contrast to what the Government has asked lenders in regards to playing fair with those in debt, particularly credit card customers. The fear is that now those Barclaycard customers who are being further punished for debt will be increasinly more vulnerable to unscrupulous lenders that prey on the financially unfortunate.

The decision comes from Barclaycard as part of their new policy of “risk-based pricing” that is designed to charge the poor and customers who are in debt pay more than those with greater financial ability to repay any credit they take out. This policy is spreading throughout the entire credit industry and means that a person with a good income who borrows £1,000-£3,000 will pay 15.9% in interest whereas a person who is considered “high risk” would end up paying 20% for the exact same amount being borrowed.

Nearly all the UK’s primary banks have been raising interest rates on credit cards in 2009 even as the Bank of England reduced the base rate to only 0.5 percent. Along with these moves, the credit card lenders have added other lesser noticed fees such as fees for using one’s card overseas.

The extremely difficult financial circumstances that these interest rate hikes put customers into have led to an alarming number of ‘debt suicides’ where UK citizens have taken their own lives in response to the overwhelming stress of debt.

The sitation is society wide and means that many people will find it increasingly difficult to take out credit on reasonable terms when they are at a lower income level. Those who are caught in the “risk-based pricing” scheme will see much more difficult credit arrangements coming their way. The financial crisis ends up punishing those at the bottom who already struggle with debt by making debt even more expensive to these people who may need it more than those with better incomes who do not actually need the credit in order to make ends meet.

According to what’s been said by the banks recently, the main focus will be on those who have experienced financial changes such as job loss or poor health leading to loss of work. These people will be targeted for potential interest rate increases since they are viewed as the highest risk for entering default.

Barclaycard does claim that its ‘early assistance’ scheme has been designed to help those who are heading towards default after income changes and that since the program’s early days this March, it has helped 11,500 cardholders, but the overall results will take time to see.

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