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Since the FCA took over responsibility for consumer lending from the FSA, we’ve been impressed with how proactive they have been in identifying problems and trying to address them. They’ve even taken on the payday lending giants and the big banks in their financial conduct crusade. However, our friends over at Which!!! have decided they just aren’t doing quite enough and have offered them some pointers on where to go next- focusing on credit cards and unsecured borrowing in a new report.
According to Which!!! figures, UK consumers’ total unsecured debt remains fairly hefty at £158 billion and eight in ten (79%) people used a credit product last year. A significant proportion of those (21%) run out of money by the end of every month, a rise of two percentage points since 2012.
The report points out a few things that Which!!! are not happy about, where the FCA should get its finger out and intervene. One of Which!!!’s bugbears is the proliferation of 0% credit cards- not the principle of them but the name. After all, it’s only a 0% card after you’ve paid the balance transfer fee. Other complaints include:
Unfair and irresponsible lending practices, like setting up credit accounts automatically
Failure to explain risks, e.g. logbook loans might make you lose your car
Repeated credit searches preventing people from shopping around for the best credit deals
Which!!! have therefore drawn up a big long list of recommendations (to add to the ones they helpfully provided when the FCA first took over the job), the highlights of which are:
Banning the use of the term “0%”on credit products that charge more than 0%, for example credit card deals with an upfront fee.
Requiring high cost lenders (including those providing unauthorised overdrafts, such as banks) to show the cost of credit as pounds per £100 borrowed over 30 days as APRs are not always suitable in these circumstances and can mislead consumers. You don’t say.
Allowing consumers to shop around by requiring lenders to use ‘quotation’ searches, rather than ones that will affect credit rating.
Forcing lenders to set minimum repayments on credit cards at a level which strikes a fair balance between affordability and ensuring that the debt is paid off over a reasonable time. Ensure all repayments made in branch or online before midnight are received on that day.
Preventing retailers from automatically signing up customers for a credit account they didn’t actively apply for.
Which!!! executive director, Richard Lloyd said: “The regulator has so far rightly focused on the unscrupulous practices of payday lenders, however, we have found problems across the whole of the credit market. It’s now more important than ever that all credit products are up to scratch, so that consumers can more easily manage their borrowing.”
But are all of Which!!!’s recommendations what we really want or need as consumers, or is Which!!! just trying to babysit us too much? If people don’t realise they might lose their car if they don’t keep up the repayments on a logbook loan, should they be allowed to have their own money (or drive) at all?
Things are possibly looking up economically, so what better way to celebrate than by slapping extra purchases on plastic. It’s not like that’s got us in trouble in the past or anything… New figures show that credit card borrowing is rising by 5.3% a year, but it’s OK, because borrowers are becoming more savvy with it.
According to the British Bankers’ Association (BBA), a massive 42% of all borrowing on credit cards is now interest-free, up from 34% two years ago. And while the availability of 0% deals hit a low after the credit crunch, the interest-free periods are now longer than ever. Transfers can now be held for almost three years interest free, and you can even purchase goods at 0% for up to 20 months now.
But are the 0% cards the best? While they may be better for your pocket, other cards offer other benefits that are valued as part of a great overall customer experience. Which!!! surveyed a load of people and worked out the top, and bottom performing credit cards for customer experience.
Balance transfer specialists are far from top of the pops, with Halifax and its noteworthy 0% for 20 months on purchases only scores 57% in the poll, putting it in 22nd place out of 36 providers. Barclaycard currently offers the longest interest-free period (33 months) on balance transfers, but it received a customer score of just 53% which is even below the average score of 58%.
So what are the nation’s favourite cards? According to the full Which!!! table, the people’s choice is, yet again, John Lewis with a customer satisfaction score of 79%, taking the title by a significant margin. In fact, it has apparently been top of the table in almost every Which! credit card customer satisfaction survey since 2010 and is one of only two providers (along with First Direct) to receive a five star rating for its customer service.
The Partnership card offers a reward scheme, which pays one point per £1 spent in John Lewis or Waitrose and one point per £2 spent elsewhere. 500 points are worth £5 in John Lewis vouchers and you also get six months’ interest free on purchases.
Second spot goes to that other housewives favourite M&S, with a customer satisfaction score of 69%.Like John Lewis, M&S Bank offers a reward points-based card which pays one point per £1 spent in M&S and one point per £2 spent elsewhere. The much more generous interest-free period on purchases (15 months instead of six months) was not enough to topple the winner, however.
Hot on the heels of M&S is the Post Office in third place. With a score of 68% for customer satisfaction, this card offers 18 months’ interest free on balance transfers and specialises in low or no fees for overseas spending.
A little while ago, it was top of the money saving pops to actually make money out of credit card companies by borrowing at an introductory 0% rate, then saving the cash or the money you would have spent in a high interest savings account. At the end of the 0% period, you simply pay off the credit card balance with the money from the savings account and pocket the savings interest. Simples.
Of course, nowadays, this scheme becomes a little more difficult to implement. There are still 0% cards available, and the interest-free period for purchases is now up to 16 months*, but being able to get these cards probably requires a pristine credit record. Also, cash advances are often charged a 2-3% fee, and with savings rates still low, the reward margin is unlikely to make doing this type of thing worth while.
But are there other things you could do? This is Money recently ran a feature where by combining a cashback 0% credit card and an offset mortgage savings account you could make a few hundred pounds in interest over 16 months, but this requires two people being accepted for the Amex platinum card and each being given a £5,000 credit limit. For maximum benefit you would also need to rack up that debt/credit on day 1 of the 16 months. If you were a more normal human who might take, say, three months to build up £10,000 credit card debt, the benefit of the scheme works out at a bit more than £20 a month. Better than nothing, but probably not worth the hassle. Similarly, the old trick of moving from 0% balance to 0% balance via a balance transfer has become much harder to get now lenders are really clamping down on the amount of credit being made available to people, and less worth it given the transfer charge rates.
However. If you are someone who uses credit cards you can always try and maximise the added extras. Cashback and loyalty point cards are an obvious way of ‘earning’ extra spending power, and if you are disciplined enough to put all your spending on a card and then pay it off before the interest kicks in, this could be a nice little earner over the year. Other cards might offer travel insurance or other ‘extras’, although these may come with an annual card fee- check that the cost is worth it and, particularly with travel insurance, whether you will be covered as standard. Many travel insurers require you to disclose any hospital stay ever before covering you, in case they want to bump up your premium.
Of course, standard card interest rates vary from just under 7% to over 35%, so if you are using the credit facility, just shopping around may save you a small fortune. Of course, you will still have the hurdle of being accepted for a lower rate card to get over first, and don’t make the mistake of applying for lots of cards in the hope of getting one- the effect on your credit rating is likely to make you a very stinky prospect. Better still, find another, cheaper form of lending, like a personal loan- again, if you can get one.
*figures from moneyfacts.co.uk
We all know that things have been a bit tight recently, and perhaps we have all turned to our old friend the credit card a little more than we should have, or we will do over the summer holiday period. But with personal loans under £7,500 at their highest rates for years, there is a danger of getting sucked into the trap of never* being able to clear the balance as your monthly payments go mostly towards covering the interest.
But never fear, Barclaycard is here. In a bizarre under-gazumping battle, Barclaycard has now thrown down the 0% balance transfer gauntlet by offering a full 2 year 0% transfer deal on its latest credit card. All you need to fork out for is the 2.8% transfer fee, and you even get £20 off this if you transfer more than £3,000.
Or, if you think you can pay it off quicker, Barclaycard are still offering another deal for 19 months balance transfer for 2.4% fee. Both cards will revert back to a standard (=high) interest rate after the period of 17.9% and 16.9% respectively. And naturally cards are only available to new customers, so if you are already in the Barclaycard net, you’ve had it.
Of course there are other deals available. Until recently the market leader was Halifax’s 20 months 0% with a fee of 3% (for balances up to £3,000) but MBNA, Natwest and Nationwide all offer deals on a 17 or 18 month transfer. And you have to get through the credit screening process first. Barclaycard claim that 1 in 2 of card applications are declined.
So why are they doing it?
Naturally, avid Bitterwallet readers were not born yesterday, and credit card companies are not here to do you a favour. They want to get their plastic claws into you and get their interest from you. After all, who is more likely to spend money on a credit card, someone you know nothing about, or someone who has already run up thousands on a similar card. And once you have the card, despite good old Martin’s admonitions, will you really be able to resist the temptation to spend on it? They are banking on the fact that you won’t.
And as a cardholder, you will normally by (default) join their marketing mailing lists. Whether or not some dodgy individual can sell this list on or not, you are then a sitting duck for attempts to sell you insurance, ancillary products, credit card cheques and anything else they can think of. Nice.
So, dear readers, if you are thinking of dining with the plastic devils, approach the deal with your eyes wide open. As if you would do anything but.
* actually, new rules that came in earlier this year mean that you can no longer be in a position where you are only paying the interest, and allocation of payments against 0% and standard rated purchases is now fairer.
Barclaycard are offering new customers 0% interest on debt if they decide to switch from other cards for 20 months. That just happens to be the longest period for which one of the deals the world has ever seen! Probably.
This offer is available from Thursday, comes on the back of MBNA and Virgin Money announcing that they were offering 0% deals of 18 months. The competition is hotting up and these buggers are all desperate for us to start getting credit cards because everyone’s currently too frightened to use them.
The sting in the tail is that Barclaycard will be upping the transfer fee from 2.9 to 3.2%.
After the introductory 0% interest period has ended, you will pay a representative APR of 16.7% with MBNA and 16.9% with Barclaycard and 17.9% with Virgin Money, although this will depend on your customer’s credit history.
This deal is only available until 3 May and only applies if you are transferring more than one balance.