Blow for 'rate tarts' as credit card firms kill off 0% transfer offers

THE days of 0 per cent balance transfer credit cards appear to be numbered as banks respond to new government proposals for the lending market by withdrawing their best deals.

Balance transfer cards have enjoyed huge popularity in recent years, with so-called "rate tarts" using the deals to switch their balances between cards offering a 0 per cent rate, in order to cut their interest payments.

Those opportunities now look set to be curtailed, with the market-leading 0 per cent balance transfer deal withdrawn after the government outlined measures to make credit card providers treat consumers more fairly.

Under the proposals, announced this week and coming into force early next year, credit card providers will be banned from raising interest rates and credit limits for borrowers in financial hardship and will be forced to use customer repayments to reduce the most expensive debts first.

Most providers currently use repayments to reduce the cheapest debts, a practice earning them around 290 million a year in extra revenue.

The proposals are expected to carry a sting in the tail for consumers – Virgin moved quickly and reduced the length of its best-buy balance transfer offer from 16 to 14 months, and experts warned further changes were imminent.

Peter Harrison, credit card expert at Moneysupermarket.com, said: "Ultimately, it is consumers who will be losing out as lenders reduce their 0 per cent offers in response."

Virgin is not alone – several providers have withdrawn their balance transfer cards entirely, according to research from Moneyfacts. The number of balance transfer credit cards has fallen by 10 per cent since 2007, with just 140 out of the 219 remaining cards offering 0 per cent deals.

Louise Holmes, spokesperson for Moneyfacts, said: " "Providers are wary of attracting debt from customers, who could default at any time and have the possibility of unemployment and economic hardship hanging over them."

That fear has driven the average credit card interest rate up to 18.38 per cent, the highest since records began a decade ago, according to new Bank of England figures. In January 2001, the average credit card rate was 12.37 per cent, just over twice the 6 per cent Bank of England base rate at the time.

The end of unsolicited credit card cheques has also moved closer, after their biggest issuer, MBNA, announced it would stop sending them out after 31 March. The cheques, sent by card issuers to give customers another way of spending on their credit cards, are due to be banned later this year.

Andrew Hagger, at Moneynet, welcomed the move. "Sending these cheques to people with little financial discipline or willpower was akin to posting bars of chocolate through a school letterbox," he said.