Precious Plastic, an annual analysis of the credit card market by the accountancy firm PricewaterhouseCoopers (PwC), predicts that annual fees will become common in the future, that interest rates will rise and that wealthy customers will be expected to pay for their cards in exchange for benefits such as money off shopping.

Paying an annual fee was commonplace in the 1990s but, at the turn of the millennium, card providers started aggressive pricing such as zero and low interest rate offers. In this way, credit cards were positioned as a cheaper form of personal short-term borrowing than loans.

“We reached a point when more people had a credit card than didn’t and when the number who had more than one outweighed the number who had none,” Sandra Quinn of the UK Cards Association said. “That was when they [cards] stopped being a status symbol.”

But mounting bad debts and continued regulatory pressure increasing the capital requirements on card providers could result in a return to the days when borrowers were required to have a high income to get a card, according to PwC.

“Lenders will focus on [customers] that are the most profitable, rather than those that are in the most need of credit,” said Richard Thompson, a partner at PwC.

The UK credit card market is unsustainable in its current form and heading for an unprecedented shake-up, according to PricewaterhouseCoopers (PwC), the accountancy firm.

The future of credit cards is under threat as never before,” Paul Rodford, head of card payments at the UK Cards Association, says in the report.

“Consumers are going to be faced with the unhappy prospect of a marked reduction in the availability of credit, a reduction in choice of products and an overall increase in charges with both increased interest rates and an expansion of annual and other fees,” he says.

The arrival of the Consumer Credit Directive, due to come into force by next June, will increase the burden of regulation on card providers, which will have to provide substantial additional information to potential customers before they sign up for new cards.

Competition will be further fuelled by the arrival of additional card providers, PwC says. The Government, keen to dispose of its stakes in nationalised lenders such as Northern Rock and Bradford & Bingley, has made clear that it wants new competitors to enter the market.

There are many costly pitfalls associated with using a credit card, but they can be avoided, writes CAROLINE MADDEN

BRITISH PRIME minister Gordon Brown recently announced plans to crack down on “sharp practices” being used by credit-card operators in Britain. The practices range from issuing unsolicited credit-card cheques to raising credit limits without being requested to do so by the customer.

Brown was following in the footsteps of US president Barack Obama, who in May signed a new “credit-card Bill of rights” to protect consumers from shady practices including unfair interest-rate hikes.

Our own Government may have its hands full with other pressing issues, but should it take similar steps to stamp out unsavoury tactics being employed within the credit-card industry, or are Irish consumers already adequately protected?

The 2007 Consumer Protection Code outlaws a number of practices that have caused problems in the US and UK. For example, the code requires that regulated credit-card providers must not offer unsolicited pre-approved credit facilities, and they may only increase a consumer’s credit-card limit following a request from the consumer.

If your credit card is groaning under the strain of too many impulse buys, those “0 per cent introductory offer” advertisements from other banks can sound like the magic solution to all your problems. However, there are pitfalls to watch out for.

Firstly, these 0 per cent interest-rate offers usually apply only to the balance transferred from your old credit card. Any new purchases or cash withdrawals using your shiny new card will almost always be subject to a higher interest rate.

Secondly, these are introductory offers and expire after a number of months. Unless you succeed in paying off your old debt in full before the end of the offer, you will generally move on to the standard rate for purchases.

Thirdly, the introductory rate can be cranked up to a higher rate if you breach the terms and conditions of the card, for example if you make a late payment or exceed your credit-card spending limit.

Take, for example, the new MBNA Platinum Visa card currently being advertised. The 0 per cent introductory rate only applies to balance transfers for the first 10 months. A variable 14.9 per cent annual percentage rate (APR)applies to new purchases. And the terms and conditions contain this important warning: “The promotional rates will be withdrawn if you go overlimit or overdue during this period.”

With Bank of Ireland’s Clear credit card and Permanent TSB’s Ice card, the 0 per cent balance transfer rate expires after six months. Furthermore, according to the terms and conditions of the Clear card, Bank of Ireland may vary the balance transfer rate. The only guarantee is that it will always be below the standard interest rate charged for purchases.

With Postbank’s standard credit card, you can only access the 0 per cent introductory rate if you apply online