The two banks that are said to have pushed up their credit card interest rates recently are Halifax and Bank of Scotland. Officials have expressed concern that whilst the Bank of England has been slashing the base interest rate over the past six months, bringing it down to an all time low of just 0.5 percent, some credit card firms have continued to hike up their interest rates dramatically.

The two groups are owned by HBOS, which has now been taken over by Lloyds TSB. The provider has said that the rate rises are between 1 and 4 percent. However, some of the credit card customers have received letters stating that their card interest rate is being increased by 5 percent. Some customers have even seen their rates increased by more than this amount. The card provider has said, however, that the move is part of a ‘continual review of rates’.

An official from HBOS said: “The changes will affect a small number of our card holders and will be according to each customer’s personal circumstances. The average increase is between 1% and 4% which is inside [government] guidelines and reflects what is happening across the credit card market.”

The high cost of borrowing on credit cards has even captured the attention of the Prime Minister, Gordon Brown, who has intervened and stated that credit card firms have to stop fleecing consumers and start treating them more fairly, particularly in the current financial climate. The base interest rate has been slashed to just 2 percent over the past few months, but officials state that interest rates on credit cards has been rising over that period.

Part of the meeting with Lord Mandelson focussed on the use of risk based interest rates, which would be set according to the likelihood of the borrower defaulting on repayments on the debt. Credit card companies have also agreed that they will wait at least thirty days before starting any debt collection proceedings providing the borrower is working with a debt advice official in order to try and find a solution towards making repayments on the debt.

Consumer Affairs Minister Gareth Thomas stated: “The government is deeply concerned that borrowers aren’t getting a fair deal. That’s why we’ve taken swift action to bring the industry in to look at how costs are being applied to people’s existing debts.”

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Borrowers who find that their credit card providers suddenly increase the interest rate on the card should contact the lender to find out why the rate has been hiked up. If the borrower has a good credit and repayment history there should be no reason why the card company would increase the rate at the current time when the base rate is actually falling, and customers need to ensure that they find out just why the card company has increased the rate, as there is a good chance that the consumer can get the rate reverted back to its original level.

Official from the Financial Ombudsman Service have said that when credit card firms have been unable to justify rate increases they have been forced to reduce the rate back down to its original level. One official from the service said: ‘This is something we are starting to see increasingly more of. What we would want to see is an individual risk assessment of that customer, not some vague statement as to why lending money is more dangerous. Firms are frequently unable to produce this.’

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Despite there being three interest rate cuts to the Bank of England base rate, following an analysis carried out by the Independant, it looks like people are now paying more now than what they would have 12 months ago with interest rates now at 17.7% compared with 16.6%.

Lord Mandelson has given providers two weeks to help their customers with ways of managing their debts which was a topic discussed at a summit back in November.  By Thursday the government is expecting providers to come back to them with how they intend to go about this and failure to do so may end in further investigation by the Office of Fair Trading.

Lib Dems Treasury Spokesman Vince Cable said “The Government has got to get tough with credit card companies determined to make a quick buck out the millions of people struggling to make ends meet. Tough words are worthless unless they are backed up with real action.”

On the Conservative side, business spokesman Alan Duncan said “The Government’s policy after the banks’ bailout has clearly not reached the credit card sector. It has done nothing to clamp down on credit card ownership – particularly by the most vulnerable people.”

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Spokes woman for Moneyfacts, Michelle Slade said “I doubt we will see lenders cutting rates on credit cards, usually lenders only cut rates to attract customers.”

She advises that the only lender to offer cards linked to the base rate is the Co-operative Bank which will see holders of Gold and Platinum credit cards gaining from a 1.5% interest rate drop although with the Gold card having a £120.00 annual fee the interest rate will be around 19.4%.

Mortgages that the Co-operative Bank offered via Northern Rock and Yorkshire Building Society the cut passed on.

On the other hand the largest credit card provider, Barclaycard, has advised that it would not be be changing their interest rate (14.9%) due to the recent drops and a spokesman says “The primary factor in our pricing is risk, not the cost of money, so the cut will not have an immediate effect.”

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