A new report from accountants PricewaterhouseCoopers (PwC) has suggested card users are likely to be hit with the reintroduction of annual fees and increased interest rates as card companies try to recoup some of the revenue they have lost as a consquence of rising bad debts, increased regulation and 'rate tarts' - that is people who constantly shift debt from one card to another in an attempt to avoid interest charges.

The "Precious Plastic 2007" report suggests 'rate tarts' have cost the industry around £600 million in lost revenue on balance transfers, despite the fact that many providers have introduced 2% balance transfer fees.
The number of people declaring themselves bankrupt or entering into Individual Voluntary Arrangements, a debt repayment scheme where interest is frozen and a certain amount of debt written off, is also negatively impacting on profits.

In addition to revenue lost from 'rate tarts' and bad debts, PricewaterhouseCoopers points out that card issuers have suffered as a result of increased regulation by the Office of Fair Trading such as the introduction earlier this year of a £12 cap for card default charges for late payment. There is also ongoing investigations into payment protection insurance and transaction charges for retailers.

Richard Thompson, partner at PricewaterhouseCoopers, said: "Credit card providers are coming under increasing pressure from fierce competition and mounting regulatory scrutiny.

"The industry is being subject to a number of separate inquiries by different regulatory bodies, looking at virtually every source of income.

"The impact may therefore be a waterbed effect whereby costs are simply reallocated between different groups of consumers. It remains to be seen whether a more equitable position will be achieved."

It is estimated annual fees, which were phased out in the 1990's, could be as much as £35.

Industry experts say it will only take one of the big issuers to decide to charge and the rest will follow suit.

PwC found that interest rates were already increasing, with 19 financial institutions putting their rates up over the course of the summer.

Article added: 30/11/06