Industry Insight and Monthly Predictions from uSwitch.com

Welcome to July's 'Personal Finance Industry Insight' newsletter from uSwitch.com.

This edition highlights changes in the market over the past month, as well as expected developments in forthcoming weeks and months.

Mike Naylor, Personal Finance Expert at uSwitch.com, predicts: "The OFT certainly has its work cut out over the next six months".

"On top of the ongoing investigation into current account penalty charges, they are now turning their attention back to the credit card industry in an attempt to improve consumer information".

"This is clearly an attempt to deal with the aftermath of the cap on penalty fees last year, which resulted in a plethora of sneaky charges and rate increases to recoup lost revenue".

"Going forward, it will be interesting to see how effective this project will be and if it's genuinely going to benefit the consumer, or if it's just an attempt by the OFT to appear to do the right thing." "As predicted by uSwitch.com in the past, it looks like the end of the sub 6% personal loan market has now happened with Masterloan's recent interest rate increase to 6.1%".

"In the current account market it seems Abbey has sparked a current account war by offering 8% interest on credit balances for new customers".

"This makes Abbey's current account more rewarding then any other bank for new customers - for the first year at least".

"However, it is a slap in the face for existing customers who get just 2.5% AER on money in their accounts." Personal Finance News Reviewed.

The Office of Fair Trading announced a new programme of work with the credit card industry and relevant consumer bodies to make the cost of credit cards easier for consumers to understand.

This decision follows a supercomplaint from Which?, highlighting that consumers are choosing credit cards without understanding all the issues that affect the cost of the card.

The work is expected to take six months and will involve close work with the credit card industry, consumer groups, other regulators, government bodies and key stakeholders.

Credit Card Customer Satisfaction.

Last month, uSwitch.com revealed that nearly seven million credit card customers are unhappy with their existing provider in its annual credit card customer satisfaction report.

Nationwide was once again voted top of the pops with the highest level of overall customer satisfaction (94%), whilst Capital One was voted bottom of the pile.

The uSwitch.com report also showed that 21 million customers have a credit card with the big banks.

On average, cardholders stick with the same provider for six years.

This increases to almost eight years with the big banks.

An existing relationship with a bank or building society was the top reason for choosing a credit card.

The second reason was the reward scheme offered, followed closely by a credit card's introductory rate or offer.

uSwitch.com recommends that customers should sit up and take action as their loyalty is not rewarded.

There are many great offers on the market and consumers' unwillingness to switch means that they are paying much more than they need to.

First Direct.

uSwitch.com commented on First Direct's introduction of a 'fair fees policy'.

At first glance, some of these changes, such as the abolition of unauthorised overdraft rates, appear beneficial for customers.

However, each positive change is wiped out by a negative one.

Overdraft Rate rises.

uSwitch.com analysis showed that some of the UK's leading banks and building societies have found a way to generate an additional revenue of over £52 million by making sneaky increases to authorised overdraft rates in the past six months.

uSwitch.com urges customers to switch to a provider that charges lower overdraft rates, such as Alliance and Leicester's Premier Direct current account, which offers a 0% 12 month introductory rate reverting to just 5.9% EAR typical.

Product changes and developments.

Credit cards: Barclaycard and Marks and Spencer are lowering the minimum repayments on their credit cards.

For Barclaycard this is a reduction from 2.5% to 2.25%, whilst Marks and Spencer has reduced theirs from 3% to 2.5%.

However, Virgin has increased its minimum repayments from 2.25% to 3%.

Loans Masterloan is the last provider to drop out of the sub 6% APR loans market by increasing its loan APR to 6.1%.

Current Accounts: Halifax has introduced an incentive of £100 for customers to switch to their current account before 11th August 2007.

They currently offer 6.17% AER for balances up to £2,500 and an overdraft facility of 15.9% EAR.

Abbey launched an 8% AER deal, which will be paid on balances of up to £2,500 but the rate only applies for 12 months; after that it reverts to a not so competitive interest rate of 2.5%.

Also, Alliance and Leicester has increased its in-credit current account rate from 5.94% to 6.31% and Coventry Building Society from 5.7% to 5.94%.

Barclays has upped their benefits for students.

Students who open a Student Additions bank account or take out a Student Barclaycard are entitled to 12 free cinema tickets.

Lloyds TSB has increased overdraft rates on all of their accounts to an average of 16.11% EAR.

03 July 2007.

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