BANKS racked up losses of almost €23 million last year because people were unable to pay their credit card bills.
However, financial institutions have been accused of issuing credit cards irresponsibly leading to thousands of people racking up massive debts and being unable to pay them off.
On average, just over €1,280 is owed on every one of the 2.3 million credit cards in Ireland. This is up from the €603 owed in 2007 when banks made a €64 profit on each card.
According to provisional figures from research group Lafferty, banks here last year made a loss of almost €10 on every credit card in the country as a result of people being unable to pay their bills. This means an overall loss for financial institutions of around €23m.
Lafferty said the Irish market is unlike others, where most banks made a profit on cards. Banks in Britain made a profit of €16 on every card. If someone had €5,000 on their credit card, it could take them 25 years to pay it off if they are only making minimum repayments. With a typical interest rate of 19% on the money owed, and paying off the minimum amount due at a rate of 2.5% a month, the person would not only pay the €5,000 owed over 295 months – but €7,958 in interest payments.
According to financial adviser Frank Conway, if the bank reduced the interest rate on the card to 15% and the person was able to increase the monthly payment from 2.5% to 3.5%, the level of interest would fall to €2,641 – a difference of more than €5,000.
Chief executive of the Credit Union Development Association Kevin Johnson said for years little attention was paid to a credit card applicant’s ability to diligently manage their finances or their ability to repay debts.
"This has resulted in not only thousands of people running up huge credit card bills which they are unable to repay, but it has also culminated in a culture whereby people purchase items and a service they cannot afford simply because they can ‘stick it on their credit card’ and worry about payment later," he said.
Mr Conway said credit card borrowing is "incredibly expensive" for users.
"For consumers, we are finding more and more who are using their credit card as a source of income and as a result, are placing themselves in negative income," he said. He added that credit card companies are probably going to rein in who they make cards available to and become a lot more selective and tough in their criteria.
The Lafferty Group said its research found that banks here are struggling with many credit losses on cards as more people are defaulting on their payments.
However, it said interest rates here are among the lowest in the world averaging 15% here against 80% in Brazil and 70% in Turkey.
a d v e r t i s e m e n t
This appeared in the printed version of the Irish Examiner Monday, February 22, 2010
