LONDON – Royal Bank of Scotland (RBS) has delayed the launch of a new low-interest rate credit card, citing worries about ballooning consumer debts in the UK.
RBS, which is almost 70% owned by the British taxpayer, was due to launch a new card with lower rates than its standard cards, but CEO Ross McEwan said the bank does not “think now is the right time” given the current UK consumer credit market, according to a piece in the Guardian.
“We just don’t think now is the right time, with consumer debt having grown so much,” McEwan said.
Consumer borrowing has grown by more than 10% a year over the last few years and the household savings rate hit an all-time low at the start of this year, raising concerns about consumers’ ability to pay back the large amount of debt that has been accumulated.
The Bank of England warned in July about the risks of spiralling consumer debts. The bank’s Financial Policy Committee said: “Consumer credit has increased rapidly. Lending conditions in the mortgage market are becoming easier. Lenders may be placing undue weight on the recent performance of loans in benign conditions.”
With inflation surging over the last year and wage growth failing to keep pace, many British households are starting to feel an acute squeeze on their finances – something that could encourage even more borrowing.
Just last week, the Financial Conduct Authority made worried noises about consumer credit, with the regulator’s Chief Executive Andrew Bailey saying he is “concerned about the sheer number of people who need loans to make ends meet.”
McEwan, however, believes that Brits should be using the fact that interest rates are at record lows to pay off their debts, rather than taking on more.
“I think financial institutions should be encouraging people to get their debts paid down and when you’re on zero balance that is the best time as it’s costing you nothing.”
“Look, call me old-fashioned, but I like people paying back. Call me old-fashioned, but I think we should be giving customers a lot more warning about the issues around them,” McEwan said in an interview with the Scotsman newspaper over the weekend.
RBS’ postponement of its new credit card comes as the Labour Party’s Shadow Chancellor John McDonnell is set to propose a cap on credit card interest repayments during the party’s Autumn conference.
“I am calling upon the Government to act now to apply the same rules on payday loans to credit card debt. It means that no-one will ever pay more in interest than their original loan,” McDonnell will say in a speech later on Monday.