Bad Credit Card debts 'to dramatically increase'

An accountancy firm has suggested that by the end of 2010, bad credit card debts could account for as much as 9% of all outstanding balances.

According to PricewaterhouseCoopers (PwC), "Bad debts in the sector have reached historic highs," with figures currently standing at around 6%.

This comes despite the credit card industry seeing a "cooling passion", with borrowing down 3% to £64bn over the past year, and a cut in the number of credit cards in circulation, falling 8%, PwC reported.

PwC said in its latest edition of the annual report Precious Plastic that the past year has seen a peak in the number of consumers willing to take on more unsecured debt, with around £230bn made up by lending products such as credit cards, bank loans and hire purchase agreements – part of the total consumer debt which includes mortgages standing at around £1.5 trillion.

PwC highlighted that the latest declining trend showed not only a change in consumer choice, but also in credit card company behaviours, with tighter lending criteria restricting new lending to customers with a good credit history.

"The recent announcement by one major issuer that they would not generally seek to acquire new credit card customers without those same customers also holding a current account with them is in stark contrast to the time when credit card issuers accounted for one in every four pieces of junk mail that made it through our letterboxes," PwC said.

Credit Card companies wrote off close to £3.2bn due to bad debts last year.

PwC has predicted that these levels will rise significantly to new highs in the UK after the recession has continued to cause rising unemployment, short-time working, pay freezes and pay cuts.

The forecast showed that as bad debts increased, borrowing rates on credit cards would also rise, as well as monthly or annual fees becoming a standard feature after lenders look to increase revenue.

"At the higher end of the market customers will pay for access to premium benefits and at the lower end more marginal customers will be expected to pay for even a standard credit card," the firm said.

Paul Rodford of Card Payments, the UK cards association, said credit cards are likely to become far less easily available.

"Consumers are going to be faced with the unhappy prospect of a marked reduction in the availability of credit, a reduction in choice of products and an overall increase in charges with both increased interest rates and an expansion of annual and other fees," he said.

Written by Sam Gooch