Switchers feed credit card rate increases

Credit card customers of two of the UK's largest retailers are to see the rate they pay on their borrowing increase, despite the bank base rate remaining unchanged since August, it emerged today.

Customers who hold Tesco Personal Finance's Platinum Finest Mastercard and cards issued by John Lewis will all see their interest rate rise by up to 1.5% next month. Customers of other card providers, including Barclaycard and HBOS, owners of Halifax and Bank of Scotland, have already seen their bills rise in recent months.

John Lewis will increase its rate for purchases and balance transfers from 14% to 15.5% on February 6, while Tesco will up its purchase rate from 14.8% to 15.75% and its balance transfer rate from 15.9% to 16.89%. Tesco's new rates will be effective from March 1.

A spokesman for John Lewis said the rate rise, which will affect holders of the John Lewis, Waitrose and Peter Jones account cards, as well as the Partnership card, was "the result of increased cost pressure on the card business" and formed part of a restructuring of the product offer.

Other changes include the extension of the interest-free period for new customers from three to six months on both balance transfers and purchases, and the introduction of a 2% charge on balance transfers. The transfer charges are now commonplace on cards offering 0% interest.

The spokesman said around 600,000 Partnership card customers would be affected by the rate rise.

"In reviewing the APR, we have sought to strike a balance between a rate that is fair and competitive for customers but also financially sustainable for the Partnership," said James Furse, the retailer's director of card services.

A spokeswoman for Tesco told a similar story: "We had to increase our rates to cover increased costs but we don't want to penalise customers so we have pegged the rise to 1%."

And she pointed out larger increases applied by other card issuers.

"If you look at our competition their rates have gone up more: HBOS has gone up by 3%, Egg by 2%, Barclaycard by 2% and Sainsbury by 3%."

Financial information provider Moneyfacts said the rate rises were a sign that lenders were suffering at the hands of customers who switch their balances between providers and that loyal customers would be forced to cover the card providers' costs.

"With interest rates having been reduced by 0.25% last August, and the last actual increase being way back in August 2004, this is another sign that card companies are suffering at the hands of the rate tarts and more recently an increase in those now unable to repay their borrowing," said Moneyfacts' spokesman Andrew Hagger.

Mr Hagger added: "The 'financial heartache' that these two distinct customer groups are causing the card companies is being passed on to those who are perhaps the most loyal customers, and who manage their accounts within their agreed limits.

"These are the people who will repay more than their minimum balance, but perhaps not always the full balance and hence are the ones bearing the brunt of other customers' actions in the form of increased interest payments."

Last November the accountancy firm PricewaterhouseCoopers said rate tarts had cost the industry an estimated £600m over the course of the year, despite the introduction of transfer fees.

It predicted an increase in the number of card providers charging annual fees to recoup their losses.