The Bank of England’s base rate has remained fixed at 0.5% since March 2009, but that hasn’t stopped credit card companies hiking their APRs. Earlier this year, the average rate was measured at 18.8%, the highest since 1998. According to the UK Cards Association, 6.4 million credit card accounts were “re-priced upwards” in 2009. Strictly speaking, the lenders are entitled to adjust variable rates, but you don’t have to take it lying down.
Due to the recession, the lending goalposts have been moved; a customer rejected by today’s standards might’ve been accepted in days gone by. Suddenly existing customers are no longer attractive borrowers, so their rates are increased (in some cases by up to 10%) in the hope they settle up and move on. But it’s not just those with poor credit ratings who are being targeted; even customers with sound repayment histories have received APR letters. The trend, from which seemingly no one is safe, is often referred to as ‘rate-jacking’.
I’ve been rate-jacked by my credit card company. Can I stop credit card APR increases?
The easiest way to avoid credit card APR increases, is to transfer your existing balance to a new interest-free credit card. Ironically, it’s often rate-jackers like Barclaycard who offer the sweetest deals to new customers. Typically you’ll pay a fee of around 3% to make the switch, but it’s definitely worth it in the long term. Unfortunately, transferring requires a strong credit history, so it’s not viable for everyone.
I have a poor credit rating. What else can I do?
Following the Credit Card Summit of November 2008, a set of principles came into force; their purpose is to protect borrowers from ad hoc increases to variable rates. The principles are a little vague in parts, but they’re a great place to start if you choose to contest any adjustments to your credit card's APR. Here they are in full:
1. Where we increase a customer’s interest rate, we will provide him/her with options. These will always include the option to close the account and repay the remaining balance at the existing rate of interest, within a reasonable period, having regard to the existing level of minimum payments and the customer’s financial situation. Where we offer alternative lending products, we may also provide the option to transfer the balance to such a product at the existing (or lower) interest rate.
The key phrase here is ‘within a reasonable period’, but it’s fair to expect that if you’ve regularly been making the minimum payment on your credit card, you may continue to do so – at the old rate - until the balance is paid off. Of course, you won’t be able to make any further payments with the card.
2. We will not increase interest rates in the following circumstances:
• Where a customer has failed to make the minimum contractual payment requested on the last two or more consecutive monthly statements; or
• Where an agreed repayment plan is in place in respect of the account; or
• Where we have been formally notified by a not-for-profit debt advice agency that the customer is in serious discussion with it.
Essentially, APR increases shouldn’t compound any existing debt problems. The last three are fairly self explanatory:
3. Provided a customer manages his/her account in accordance with the product’s terms and conditions we will not:
• Increase interest rates within the first twelve months of a customer having a credit/store card;
• Increase interest rates more often than six monthly beyond this period.
4. We will always give a customer at least 30 days notice of an increase in interest rates, so that the customer can make other arrangements, should they so wish.
5. If the customer asks, we will ensure that our staff are able to provide the customer with an explanation as to why an interest rate may have been increased.
The principles aren’t legally binding, but there’s still an obligation to adhere to them. If you do decide to challenge an APR increase, it’s best to phone your credit card provider in the first instance. Cite the Principles Relating to Credit / Store Card Risk-Based Re-Pricing, as agreed and defined by the Government and the UK Cards Association (APACs) in December 2008. Clearly state which principle you believe has been breached, and stay calm; ideally you want the rep to sympathise with you, so shouting, while potentially satisfying, isn’t necessarily the best course of action. For other call centre-related tips, check out Bitterwallet’s How To… deal with call centre staff.
If you don’t get anywhere over the phone, but still believe you have a genuine grievance concerning your credit card APR, the next step is to write a formal letter of complaint. Again, state which principle you feel has been dishonoured, and request a full explanation. Mention that, in the absence of a full and satisfactory response, you will be forced to contact the Financial Ombudsman’s Service (FOS).
If necessary, the Ombudsman will take on your case and contact the credit card company on your behalf. At this point, your provider can either argue their point, or, in the best case for you, the consumer, settle and revoke the APR increase. The Ombudsman’s how to complain page explains how to get the ball rolling.
I’m struggling to make payments on my credit card. How do I get help?
There are two places you can turn to for support. The first is the Consumer Credit Counselling Service (CCCS), a registered charity offering free anonymous debt advice. The second is National Debtline; the law concerning debt differs in England, Scotland and Wales, so they offer region-specific advice.