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.

In its latest annual report on consumer credit, entitled Precious Plastic, PwC said that British consumers’ passion for their flexible friends is cooling — with households weighed down by personal debts and credit becoming increasingly scarce.

Card providers are facing a heady rise in their own bad debts, as well as constraints on funding and increased regulation that makes it easier for overburdened borrowers to wriggle out of repayments, PwC says.

It predicts that, as well as increasing borrowing charges, monthly or annual fees will become the norm.

“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.

Over the nine months to the end of September lending to consumers reached £1.5 trillion, flat against the same period last year, according to figures from the Bank of England. The growth rate in lending has been slowing for four years.

Within that figure, unsecured borrowing — mainly personal loans and credit cards — was also virtually unchanged at about £230 billion, having grown by 6 per cent during the previous year, according to the Bank.

PwC predicts that bad debts, currently at 6 per cent of current card balances, would rise to 9 per cent by the end of next year.

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