Consumers warned on credit card debt risks

Consumers were urged yesterday to avoid racking up long-term debts on their credit cards. The financial regulator made the call as it published research showing that half of consumers do not know the interest rate on their credit card. Laura Slatteryreports.

However, it emerged yesterday that more than two years after the regulator published proposals to prohibit credit card providers from raising credit limits except at the request of the customer, the ban on unsolicited increases in credit limits has yet to be introduced.

The regulator's head of consumer information, Sharon Donnery, said it was in a final round of discussions with providers about the implementation of certain measures in the consumer protection code, which was published last July. It is expected that all of the measures in the code will be in place by the end of June.

The regulator said companies needed time to make the necessary changes to their systems and procedures.

A ban on offering unsolicited preapproved credit in the form of mail shots and cold calls came into effect last summer. Debt advice organisations have said a ban on unsolicited increases in credit limits would help curb indebtedness.

Bank of Ireland and MBNA, the two credit card providers most heavily involved in offering unsolicited credit limit increases, both objected to the ban when it was first proposed in February 2005. Bank of Ireland argued that very few customers ever objected to the higher limits.

MBNA has since ceased this practice, but a spokeswoman for Bank of Ireland said it continued to give certain customers unsolicited increases in their limits in line with the rest of the industry.

The bank said it anticipated that the facility would no longer be available once this part of the consumer protection code is in place.

Ms Donnery said the measure was being introduced because the regulator was concerned that consumers may borrow more than they needed.

"We want to see a situation where consumers are only offered credit to a level that they have requested. We believe that offering additional credit when it is not sought or required by the customer is not good practice as it could increase a person's indebtedness," she said.

Some 51 per cent of credit card holders told the regulator they did not know the interest rate on their card, while 45 per cent do not pay off their balance each month, meaning they are charged interest rates of between 9.4 per cent and 18.9 per cent.

Around €1 billion is spent on credit cards every month. Central Bank figures show that consumers owed €2.6 billion on credit cards at the end of January. It is estimated that around half of that debt would have been cleared by consumers who always pay off their full balance.

The regulator, which has published a new guide and credit card cost survey, advised people who have built up credit card debts to shop around for cards with low introductory rate offers.

But its advice may simply be ignored by consumers. A separate study published by consumer behaviour consultants, the Future Foundation, claimed that one in four Irish people regard "living well" as more important than clearing their debts.