MBNA's 4% hike in credit card interest 'mercenary'

THE DECISION by one of the State’s leading credit card companies to increase the rates of interest it charges by 4 per cent has been heavily criticised as “mercenary” by the Republic’s leading consumer advocacy group.

MBNA is writing to more than 200,000 customers this week telling them the interest rates on their credit cards are increasing from 14.9 per cent to 18.9 per cent from November.

MBNA has said “changes in the economic and external climate means that all lenders – ourselves included – consistently re-examine their rates, pricing and fee structures”. It said it was also taking into account “the actual or anticipated risk levels of customers” based on how they have been managing their accounts.

Dermott Jewell, chief executive of the Consumer Association of Ireland, described it as “an extraordinary increase”. He said he was surprised the firm is not afraid of losing a huge amount of customers as a result. He pointed out that a lot of customers will not be in a position to switch to alternative providers as they are saddled with high levels of legacy debt. “I have to say that I think this is a very mercenary approach. Clearly they have thought long and hard about it and they are hardly likely to do a U-turn.”

The bank said customers with outstanding debts could, if they wished, contact the bank and reject the rate increase. While that would mean they would no longer be able to use the card, they would be allowed to clear the existing debt at the lower rate of interest.

Mr Jewell said the rate increase would “seriously hurt a lot of customers” and he suggested it would “make people understand how little their business is appreciated”. “Effectively thousands of people are being bled dry,” he told The Irish Times last night.

MBNA has more than 200,000 customer accounts, with outstanding balances of more than €650 million. In March, Bank of America sold MBNA to Apollo Global Management in a move which secured 250 jobs at the company’s Carrick-on-Shannon operation in Co Leitrim.

While the rate increase moves MBNA from being among the cheapest credit card providers in the Irish market, it is still not the most expensive. Some of AIB’s credit card offerings attract a rate of 22.7 per cent, while Tesco’s credit card has an interest rate of 19.1 per cent. Ulster Bank has credit cards with rates of 19.2 and 22.6 per cent.