75ZT Community

A member of my staff came to see me with a problem last week.

Being relatively young and irresponsible, he'd taken out a credit card and used it almost up to the limit of £11 500. Bearing in mind his salary is £13k, a credit limit that high would raise an eyebrow or two I would have thought.

With a base rate at the moment of 0.5%, his credit card interest of 18.9% would be hard to justify, in my view, but he has been able to continue making his payments without default.

The problem arose when he received a letter from the card issuer stating that his interest rate was to rise... to 30.9%.
The reason given was

In the current financial climate we have to insulate ourselves from the effects of bad debt and your account history suggests that the new interest rate quoted above would be more appropriate.

This is entirely in line with our policy of responsible lending

I laughed at that. What responsible lender would give a credit limit nearly 100% of annual salary. Or, for that matter, allows the customer to repay merely 1% of the outstanding capital per month?

In addition, the whole section I've quoted above as absolute balderdash. Clearly, this chap has been targeted as somebody who probably is unable to repay the amount other than at the minimum rate and certainly could not settle the account in one go. So they have a cash cow, locked into a repayment scheme netting them an APR of 30.9% with no hope of paying the capital down for many years.

In fact, all they've done, is tip the chap over the edge from being able to service his debt into a position where he would be likely to default.

How does that equate with "responsible lending policy"?

Not being an expert in such matters, I was at least able to put him in touch with somebody who is and can help him sort things out, initially closing the account to further use and therefore fixing the interest rate at the current level.

That isn't the end of the matter though.

Yesterday he received a letter, signed by the same individual who'd informed him of the interest rate hike, informing him of the happy news that:-

Owing to your proven credit record, we are pleased to inform you that your credit limit has been raised to £14750.

This isn't some back street loan shark. This is Halifax.

Capital One work in the same way as this

Hopefully if he has been paying this card of regularly, it will hopefully have improved his credit rating.

My advice would be to seek out a 0% interest rate card ( normally come with around 3% transfer fee ) and transfer as much
of the balance as possible on to that. I'm sure Virgin and Barclays have offers of 0% for 12 mobnths or over. That rate hike is a joke.

I agree though that this doesn't appear to represent responsible lending.

Happened to me a few years ago with Egg. I had a credit limit of £5,000 which they raised up to £12,000 over a few years, unrequested - every time I neared the limit, they'd extend it by another £1k or so. And I eventually ran up to that full balance of £12k. Interest rate then was about 16.9%, and then I got a letter saying that due to the level of debt I had the rate was going up to 26.8%. Which. like the example above, meant that I was in danger of defaulting, even though on the old interest rate I was managing (just).

Luckily, I managed to convince them to convert the credit card balance to a loan instead... at 14.9%. They agreed only on the condition that the credit card was cancelled (removing my ability to keep running up debt with them). Manageable, and the capital itself would start being cleared, rather than just the interest.

A few years down the line and now I'm fully back in control of all my finances, with most of my debts cleared. Although I dread to think what would have happened if they hadn't agreed to convert the credit card debt to a loan. I would probably have had to go bankrupt.

TyphoonTT wrote: I'm sure Virgin and Barclays...

The company behind Virgin's card, MBNA, are even worse rogues Ben. Some of their tricks beggar belief. In fact, in the past, I've reported them to The Times money troubleshooter on behalf of one of my students and they've been obliged to cough up a refund of some £245.

raistlin wrote:

TyphoonTT wrote: I'm sure Virgin and Barclays...

The company behind Virgin's card, MBNA, are even worse rogues Ben. Some of their tricks beggar belief. In fact, in the past, I've reported them to The Times money troubleshooter on behalf of one of my students and they've been obliged to cough up a refund of some £245.

Oh dear. Still, I think it has to be worth looking around for a better deal in order to successfully pay off the debt?

But surely we are the customers so they operate in our nbest interest!!

Seriously though banks and insurance companies seem to be able to operate 'outside the law'

Am I alone here, but I don't have a credit card?
With only pensions as income, I cut the Barclaycard up a couple of years ago. Never had a problem yet, just use the bank debit card, and Paypal for online purchases.

Mick

I'm sure I've heard about this trick on Money Saving Expert.

If I'm right, you can refuse to accept the new rate: the only proviso is you have to stop spending on that card.

I didn't take a lot of notice of it, so it's worth sending him off to MSE (Moneysavingexpert.com) to do some research.

Duncan wrote:I'm sure I've heard about this trick on Money Saving Expert.

If I'm right, you can refuse to accept the new rate: the only proviso is you have to stop spending on that card.

I didn't take a lot of notice of it, so it's worth sending him off to MSE (Moneysavingexpert.com) to do some research.

You are right Duncan.

I put him in touch with the CS welfare financial adviser and that was the first thing to do. He now has to pay it off at the fixed interest rate and no longer uses the card.

As I said earlier, I've seen this trick before perpetrated on one of my students by Virgin money, but they took highway robbery to an even higher level.

I don't condone financial irresponsibility but I've been there, done that myself many years ago, when the Barclaycard first became popular. However, in those days, rather forcing the customer into a cash cow role, I was summoned before the bank manager, given a stern talking to, and HELPED on to the right track.