Beware credit card firms’ odious tricks

Why can’t we just have open and honest charges, without all the cross-subsiding?

The 0 per cent introductory deals that credit cards offer are one of the most odious tricks (AP)

Are the rewards that credit card companies hand out to consumers simply a way to confuse people about how much they’re actually paying to use plastic? That’s the view of reader Peter Jackson of Stockport, who got in touch after reading our credit card article.

It pointed out that credit card companies are cutting back on rewards and cashbacks because a new EU clampdown on charges is hitting their profits. But Peter asks: aren’t the perks received by customers just paid through higher prices in shops?

“Any perks individuals receive have been paid for by themselves without them knowing,” he writes. “What makes matters worse is the fact that, because everyone pays the same price in the vast majority of retail outlets, anyone without a cashback deal is subsidising the customers who do.”

He goes on to make the same point about current accounts. “This has been going on for years in the form of free banking. Banks give free bank accounts and then make their profits from people going overdrawn.” To be honest, he could have made the same point about mortgages, energy bills or mobile phone charges. People with the time and energy to seek out the best deals do well. The rest of us get penalised through higher charges, or fewer discounts.

“Instead of charging a fair price for a fair service, companies put all their energy into hiding charges,” Peter continues. “It ends up with the poor and financially illiterate supporting the well-off.”

“Why can’t we just have open and honest charges, without all the cross-subsidising?” Peter asks. It’s a fair question, and one I’ve consistently put to financial firms over the years. With a few notable exceptions, most are too scared of losing business if they don’t compete with the same marketing tricks that their rivals have.

The 0 per cent introductory deals that credit cards offer are one of the most odious tricks, as people are hit by massive balance transfer fees as well as high charges at the end of the term. The sooner these tricks are outlawed the better.