BARCLAYCARD faces calls for an investigation by financial watchdogs after raising its charges despite recent interest-rate cuts.

Britain’s biggest and oldest credit card company said it was introducing the rise because more customers were defaulting on their loan repayments.

The claim was disputed by consumer groups, who said that so-called bad-debt levels were near historic lows. Most banks, including Barclays, have played down fears that consumer and corporate borrowers are reneging on their repayment obligations.

Barclaycard admitted yesterday that it plans to impose sweeping interest-rate rises on its nine million UK customers. The rate increases could see some clients paying interest of up to 27.9 per cent. Most customers will pay 14.9 per cent, 17.9 per cent or 19.9 per cent. The rate a customer pays is determined by the level of risk that a credit card company believes they pose. The base rate was cut by 0.25 percentage points to 4.5 per cent by the Bank of England in August.

Yesterday MPs on the Commons Treasury Select Committee said that Barclaycard could face an investigation by the consumer watchdog over the increases.

Angela Eagle, the Labour MP for Wallasey and member of the committee, said that Barclaycard could be referred to the Office of Fair Trading.

She said: “I do not see why people should not make a reference to the OFT. Barclaycard has to justify what it is doing.

“If they do not give any evidence (to justify the increase) we just have to take the company’s word for it.” Fellow committee member Michael Fallon, the Conservative MP for Sevenoaks, added: “Transparency is vital and the key is whether customers understand the higher charges that they have to pay. The Department (of Trade and Industry) and the regulators should get involved.” The reaction to the rise will come as a blow to the company, which has worked hard to restore its image as a responsible lender after Matt Barrett, its former chief executive, said that credit cards were too expensive.

Norman Lamb, the Liberal Democrat trade and industry spokesman, plans to write to the company to demand an explanation.

Despite a low Bank of England base rate, credit card companies have been increasing charges. Egg, the internet bank, Bank of Scotland, Mint and Capital One have all raised their rates since January.

The Consumer Credit Counselling Service said: “We are concerned that this move (by Barclaycard) will have an impact across the credit card sector. Interest-rate increases mean that people who are unable to pay back their balance each month will end up paying more.”

Royal Bank of Scotland, NatWest, Lloyds TSB and HSBC yesterday said that they had no plans to raise credit card rates.

In the past, MPs on the Treasury Select Committee have accused the OFT of taking a soft line with credit card companies. Yesterday the consumer watchdog announced that it would investigate how credit card companies market their headline rates.

Earlier this year the OFT ruled that companies’ late payment and over-the-limit penalty fees, which are typically between £20 and £25, are excessive and should be reduced.

Mike Naylor, principal researcher at Which?, formerly the Consumers’ Association, said: “This is another very good reason why no one should have a Barclaycard. Or for people who already have one to switch to a cheaper card. There are lower rates available.” Borrowers can obtain credit card rates of less than 7 per cent from other credit companies.