Friday 23 February 2018

Broke consumers default on 10pc of credit card debt

Charlie Weston Personal Finance Editor

CONSUMERS are so cash-strapped that €1 in every €10 owed on credit cards is not being paid back, the Irish Independent has learned.

Some €283m in card debt was written off by credit card providers last year after consumers defaulted on their card payments, according to banking research firm Lafferty Group.

An average of €1,280 is owed on every credit card in the country. Consumers collectively owe €2.9bn on just over 2.17 million credit cards, according Central Bank data.

But new research by the British-based Lafferty Group, headed by Irishman Michael Lafferty, shows that the number of those unable to meet their credit card payments is soaring.

The market in this country is dominated by AIB, Bank of Ireland, MBNA and Ulster Bank.

Lafferty's Andrew Neeson has calculated that there was a four-fold increase in the amount of money card providers had been forced to write off in the past three years.

Heavily indebted consumers defaulted on €73.5m in credit card bills in 2007. By last year this had climbed to €283.44m, Mr Neeson's calculations show.


That credit card issuers have been forced to write off millions of euro in bad debt means that Ireland has gone from being one of the most profitable for credit card providers to a situation in which credit cards are now loss-making.

Mr Neeson said the huge losses being suffered by providers meant it was likely they would hike card interest rates in a bid to stem the losses.

In the past few months, a number of card providers -- including Permanent TSB and National Irish Bank -- have increased the interest rates on their cards. Fees charged for the likes of missed payments have also shot up. Before the credit crisis struck in 2008, card providers were making a profit of €46 on every card, the Lafferty research indicates. But the surge in the numbers of consumers defaulting on their card debt means that the profits have turned into a €9.54 loss on every card. Irish people tended to have fewer cards than people in other countries because of the stamp duty imposed on each card in issue, Mr Neeson said.

Irish credit profitability had been high, however, because the market is heavily concentrated with just four providers -- AIB, Bank of Ireland, MBNA and Ulster -- accounting for 96pc of the market.

Consumers have spent the past year paying down money on their cards, but despite this the overall amount owed has hovered at around €3bn over the 12 months.

The Christmas period saw a rise in spending on credit cards, in line with previous years. Some €929m was spent on credit cards in December, compared with €876m repaid.

Irish Independent

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