Card companies exploit financial crisis

Over one million homeowners are using credit cards to pay their mortgages and other household bills as the financial turmoil takes it toll on family finances, according to new research.

The report, by the comparison website Uswitch, accuses the banks of exploiting this desperation by imposing high interest rates on consumers and has called on the Office of Fair Trading (OFT) to investigate.

Uswitch say that around one million homeowners are using credit cards to pay their mortgage, loans and household bills. Another 700,000 are withdrawing cash from one credit card to pay off another. It estimates that 1.7 million people are planning to fund their first "credit crunch Christmas" with the cash from credit cards.

The comparison site estimates that credit card companies are making as much as GBP 161m by charging customers to withdraw cash using their plastic. Around 7.3 million customers are being charged cash withdrawal rates of up to 32 per cent and are often charged a cash advance fee of about 2 per cent. Interest is also charged as soon as money is withdrawn.

Louise Bond of Uswitch said: "With some providers now charging the APR equivalent of almost 32 per cent on cash withdrawals, equivalent to some sub-prime credit card rates, cash rates have become sub-prime rates masquerading as mainstream lending. We now challenge the OFT to investigate whether these rates amount to 'usury' or extortionate lending."

In 2005, the average rate for cash withdrawals was 21.22 per cent with Nationwide offering the lowest rate of 16.9 per cent. Today this has increased to 29.97 per cent, almost double the average purchase rate of 17.2 per cent. Nationwide's cash advance rate has almost doubled to 31.23 per cent - an increase of 85 per cent - bringing them in line with competitors. Lloyds TSB has increased its rate in the past three years from 19.90 per cent to 31.91 per cent today.

By hiking rates by more than a third, providers have inflated income from withdrawals by up to GBP 43 million since 2005, according to Uswitch.

The comparison site also estimates that 1.7 million people are planning to fund their first "credit crunch Christmas" with the cash from credit cards