Credit card interest rises may increase trust deed numbers?

18th May 2011

In recent times there has been a lot of news which will have come as a relief to beleaguered credit card users and those who have had to enter into a trust deed to make ends meet. The sale of inappropriate and expensive PPI polices appears to have been thwarted. Credit card issuers have been forced to end their obviously unfair policy of applying customer repayments against the cheapest debt rather than the most expensive (often cash withdrawals). Consumers could be forgiven for assuming regulatory and consumer pressure may start to bring around a reduction in trust deed numbers.

Of course credit card providers and banks have not stood by and watched as a legal requirement to treat their customers fairly has put a dent in their profits; far from it. They have taken the much more transparent step of simply hiking interest rates to the highest level in more than a decade, despite general interest rates being at their lowest in living memory. Is it any wonder so many individuals require a trust deed to help themselves out of financial difficulty?

According to Moneyfacts, the average credit card interest rate is now 19.1%. Since 2010 they have typically increased by a rate of between 0.6% and 2%, as the lenders recover the reduction in their profit margins. Well-known credit card issuers who have raised their credit card rates include Royal Bank of Scotland, Santander, Halifax and Barclaycard.

One effect of the increase in interest rates is likely to be a gradual increase in financial pressure on those already indebted. Such practice could easily lead to the requirement for a Scottish trust deed.

Of course credit cards are not the only type of debt included in a trust deed; however, they do play a unique role in the rapidly escalating debt which often occurs in the months prior to a debt problem reaching the point at which such drastic action is no longer optional. During these months the overall debt total can increase at an exponential rate as debtors will be forced to ‘rob Peter to pay Paul’, in an attempt to make ends meet from pay-cheque to pay-cheque.

Many people that have sought the protection of a trust deed will have bitter memories of making their debt repayments soon after having been paid their salary, then juggling credit cards to buy essentials including groceries and vehicle fuel for the remainder of the month. Credit cards are sometimes even used to pay mortgages and rent during this period.

The current increase in credit card rates will serve to drive the rapid debt escalation during this period further and faster than ever before. Potentially the decision to take debt advice and review solution options (including a trust deed) will be taken at a point where debts are higher than may otherwise have been the case. Such a delay is likely to lead to fewer debt solution options being available.

When an individual does enter into a trust deed, credit card providers are likely to have to write off a section of the debt they are owed, and in many cases more than was previously necessary. Guess how the banks and credit card providers are likely to respond to that eventuality!

If you require further trust deed information then our trust deed forum offers an invaluable resource. We have regularly posting and contributions from trust deed experts and members of the public alike, both of which can offer you the advice and support you are looking for.

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