High risk credit card holder being "cut loose"

According to a new report from the Bank of England, lenders are reducing the limit on their credit cards as well as tightening their scoring criteria creating an increasingly brutal environment for consumers.

The Bank predicted that over the next three months, lenders will reduce their credit card limits and tighten their credit scoring criteria further while spreads on unsecured lending to households are expected to narrow.

Furthermore, a net balance of lenders reported that they had reduced the amount of unsecured credit made available to households over the past three months, by more than they had expected.

Pierre Williams, head of research at financial comparison service MoneyExpert.com, said that the Bank's assertion that it will become harder for consumers to ascertain credit is a different message to the one sounded by the government which has been more optimistic about the outlook for credit card customers.

He said: "It's a case of the right hand not knowing what the left hand is doing. Once again the government and the Bank of England are at odds, this time over what's really happening in the world of consumer borrowing."

The government's Consumer White Paper, published this month, outlined significant reforms to the regulation of credit and store cards, designed to put consumers more in control of their borrowing and to help guard against people running up credit and store card debts they can't pay off.

It advised that these regulations will balance the importance of choice and a flexible market with personal responsibility and protection from over-indebtedness.

Consumers are also to be protected by a ban on unsolicited credit card cheques which can tempt consumers unaware of the high interest rate charges to borrow money they cannot afford.

Mr Williams said: "We can all agree that the plans outlined in the government's Consumer White Paper to ban unsolicited credit limit increases are broadly sensible but not reflective of the current lending environment. The white paper appears to be at least a year too late as the horse has bolted following years of excessive lending.

"The Bank of England by contrast is reporting widespread reductions to credit limits, a picture reflected in MoneyExpert's own research. Our research has discovered that 2.7 million people have had their card limit reduced by an average of £1,960. The truth is that high risk and unprofitable customers are being cut loose."