Credit card companies face losing billions in write-offs
IRISH lenders may be forced to write off credit card bills as debt rises and borrowers struggle to pay them off.
The International Monetary Fund expects 7pc of the €1.34tn of consumer debt in Europe will be lost as people default on credit card debt, the 'Financial Times' reported. In the US, the percentage of consumer debt that will be lost is double this, it added.
The number of people contacting the Dublin-based debt advice charity Myvesta about credit card problems has doubled in the past eight months and their debts have increased as well.
The average credit card debt of somebody in trouble is now €8,009 this year compared to just €3,833 in 2006 as the country's appetite for debt rockets.
"The whole culture of borrowing for lifestyle has been rampant both here and in the UK," said Sean Tyrer, head of Myvesta. Borrowing on credit cards has been far more subdued elsewhere in Europe where there is still a stigma attached to going into debt, he added.
A spokesman for the Irish Banking Federation said earlier this month that credit card providers were forced to raise interest rates because the providers had to cope with greater numbers of people defaulting on their credit card debts. AIB, Ulster Bank, Permanent TSB, Bank of Ireland, Halifax and National Irish Bank have either increased the rates they charge on their cards or imposed higher fees in recent months, according to an Irish Independent survey.
The higher charges were introduced despite a record six falls in European Central Bank interest rates. The number of credit cards in Ireland is rising, touching 2.4 million in May, but the monthly amount being borrowed has fallen to €927m.
Payments on credit cards exceeded new spending in May and outstanding indebtedness fell by €23m during the month, the Central Bank said recently. Payments on credit cards has exceeded new spending every month in 2009 to date, and this led to the annual rate of increase in outstanding indebtedness on credit cards to slow to 0.1pc in May.
This is the lowest annual increase in outstanding credit card indebtedness since records began in 2002.
- Thomas Molloy
