London - High street banks were on Tuesday night accused of getting families ‘hooked on debt’ by bombarding them with credit card offers.
With Christmas less than a week away, banks have been battling to sell credit cards by offering interest free periods of more than three years.
Customers are allowed to transfer a debt or balance from another card, allowing people to effectively put existing debts on hold while accruing new ones.
But after the 0 per cent offer ends, they are hit with an annual interest rate of 19 per cent or more.
These ‘teaser rate’ deals can be great for savvy customers who pay off their debts or switch cards before the introductory period ends.
But campaigners and MPs fear these offers are fuelling the current boom in household debt – which is growing at the fastest pace in more than a decade.
‘This type of cards risk getting people hooked on debt they can’t get rid of,’ said former pensions minister Baroness Altmann. ‘People are being enticed by low interest deals and trapped in cycle of debt.’
Former Labour shadow chancellor Chris Leslie said: ‘My concern is that some customers are being hoodwinked and lulled into a false sense of security.
‘Lenders are relying on catching people out with higher rates.’
A report published by Moneyfacts yesterday found the average 0 per cent introductory period for teaser rate credit cards hit a record high this month of 637 days, or almost two years.
This is up from 590 days in January, and 471 two years ago. Currently Halifax, MBNA and Virgin Money offer 41 months – or three years and five months – interest free. Santander and Lloyds Bank offer 40 months.
Customers pay an initial transfer fee of around 3 per cent. Last month the Bank of England revealed more than £190billion was owed on credit cards, loans and overdrafts in October - 11 per cent more than in 2015 and the biggest increase since October 2005. And debt charity StepChange said it helped 117 000 people with combined credit card debts of £950million in first six months of the year.
Last night a spokesman for Lloyds Banking Group – which owns Lloyds and Halifax, and is in talks to buy MBNA – said: ‘All of our lending decisions are driven by our commitment to be a low-risk, responsible lender, and as such our products are subject to a number of strict application criteria.’
Richard Koch of The UK Cards Association, which represents banks, said: ‘Every application for a credit card is subject to a rigorous risk and affordability assessment.
‘Promotional deals give great value for many customers, enabling them to save money by switching to a lower interest rate for outstanding borrowing.’