Money Magic

PriceWaterhouseCooper have released their “Precious Plastic 2008” report, and company accountants suggest a tightening of consumer credit in response to increasing debt loads and unrecoverable loans. 

The firm predicts that credit card providers will see a decline in profits as more and more borrowers find it impossible to make payments on their debt.  Increased competition in the industry will compound the sector’s troubles. 

Credit companies have already lost nearly £4 billion, and PwC believes this will contribute to a substantial number of credit application rejections this season. 

The report indicates that the average adult owes approximately £33,000 in unsecured loans, double the amount in 2000. 

The rise in consumer debt is forcing banks to tighten their lending standards, according to Richard Thompson of PwC. 

He fears that many consumers will find it difficult to obtain credit in the months before Christmas.

Many consumers, even those with a good record of repayment, are seeing a reduction on their credit card spending limits as companies respond to the current global financial crunch. 

The “Daily Telegraph” reports that spending limits are being “slashed.”  Financial services provider Goldfish told the paper it had cut limits for some of its customers. 

Problems in the sub-prime mortgage sector in the US ushered in the most recent crunch as an increasing number of homeowners defaulted on their loans.

Several major financial institutions bought into this debt, and the defaults left them with the potential for staggering losses.  In response, banks raised the rates at which they lend to each other.  The impact of this tighter credit has been felt at the highest financial level. 

Experts anticipate further turmoil in the international credit market.  The performance in global stocks yesterday indicates that the repercussions will be felt for some time. 

The FTSE index in London suffered its largest decline since August on news that investment bank Goldman Sachs was predicting large losses for rival Citibank due to losses in the sub-prime market. 

Citigroup shares dropped 6 percent yesterday in response.

Consumer confidence has been damaged by news of escalating problems in the financial sector, according to debt counseling service provider Thomas Charles. In response, some Britons say they plan to cut back on their credit card purchases this Christmas. 

This summer’s failures in the US sub-prime mortgage market led to a run on Northern Rock bank earlier this year and sparked a tightening of credit. 

One quarter of those questioned by Thomas Charles and market research firm YouGov say they plan to refrain from spending on their credit cards. 

The study indicates that not only are consumers thinking about how much they are spending these days, they are making an effort to stay within their budgets, says Thomas Charles director James Falla. 

Mr. Falla is not entirely certain that shoppers will be able to keep to their plans and avoid credit charges during the festive season, when shopping tends to peak. It can be difficult for consumers to maintain their resolve at this time of year. 

Thomas Charles’s in-house research indicates that approximately 15 percent of Britons have debt over £10,000. Women are less likely to have significant debt loads than men, according to the study.

A report released today suggests that consumers will curtail their credit card spending this year. 

After polling 2,000 adults, Thomas Charles, the debt counseling service, warns of a possible slow-down during what is traditionally the busiest shopping season of the year. 

Approximately one-quarter of those questioned claimed they will try not to spend on their credit cards.  Ten percent say they will not put any major charges on their cards. 

One reason many may be unwilling to add to their credit card debt: approximately 15 percent already have unsecured debt and loans amounting to £10,000. 

Increases in interest rates and the subsequent rise in mortgage payments are forcing many Britons to buy everyday items with credit, a practice that many of them cannot afford. 

James Falla, managing director of Thomas Charles, says the survey indicates that consumers are trying to manage their debt load.  He sees it as good news for the consumer, although it may not help retailers who look for strong sales during the festive season.

Estimates indicate that total current debt among Britons is around £1.5 trillion.

Credit card firms must continue to insure purchases of goods and services made abroad, according to a ruling by the House of Lords.  The online comparison and switching service uSwitch applauded the decision. 

Lloyds TSB and Tesco Personal Finance appealed the Consumer Credit Act, but their action was dismissed. 

As a result, Britons who use a credit card to make purchases abroad of £100 to £30,000 will be insured under Section 75 of the Consumer Credit Act of 1974. 

The ruling was hailed as great news for consumers by Mike Naylor, Personal Finance Expert at uSwitch.  Credit card providers have raised the question of protection for purchases made by credit card overseas. Naylor predicts the ruling by the House of Lords will put the question to rest. 

He added that the ruling, which also insures purchases over the internet of goods shipped to the UK from overseas, means that consumers will be protected when they use their credit cards, no matter where in the world they are. 

Overseas credit and debit card transactions accounted for nearly £16.4 billion for consumers in the UK.