It seems that the major UK credit card companies may be forced to reintroduce an annual fee to claw back lost profits due to bad debt.

This is according to a report "Precious Plastic 2006" issued by the accountancy firm Price Waterhouse Coopers (PWC), whose insolvency experts have conducted research into the consumer credit market. Their data shows that many credit card lenders have been hit by a combination of:

* An increased number of people entering into Individual Voluntary Agreements (IVA's), whereby they can pay off an agreed sum to avoid bankruptcy; * Changes in the regulations affecting the credit industry; * So-called "rate tarts", who can switch easily between different credit card companies to finance their debt at a small cost.

People who have entered into an IVA owe an average of £ 60,000 in credit card debts and other unsecured loans to 11 different lenders. The scale of the IVA problem is large and growing, with more and more individuals opting to pay off their debts at a reduced rate, and at the same time, have them effectively frozen by their lenders.

On top of this, the credit card companies have lost an estimated £ 600 million to rate-tarts, because of low interest rate inducements, to encourage card-owners to switch lenders. Indeed, the Association for Payment Clearing Services (Apacs) has estimated that in 2004, nearly 20% of borrowing was due to credit transfers. That meant that rate-tarts were able to borrow an estimated £ 21 billion - mostly at 0% interest.

Not many people will shed a tear for the credit card companies' problems. However, these factors, argue PWC, make it seem very likely that credit card lenders will be forced to re-introduce an annual credit card fee.

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