Credit card holders hit by 'hidden' rates
Investigation finds lenders ignore guidelines and don't publish true APRs for some customers
Saturday 13 April 2013
Consumers looking for a new credit card may end up with an APR 9 per cent higher than advertised rates, due to the widespread use by banks of highly secretive "risk-based pricing", according to latest research.
Halifax, Barclaycard and NatWest are among major card providers who employ risk-based pricing to determine the APR they offer applicants. This practice employs credit scoring to decide what rate of interest a particular customer will pay. The more risky a bet you are seen to be, the higher the interest rate you pay.
Financial information service Moneycomms, who conducted the research, found nine major lenders use the risk-based pricing model in credit cards.
Halifax has the largest difference between the representative rate and the highest, risk-based APR, with two of its card products having a 9 per cent surcharge, making its maximum APRs of up to 25.9 per cent the highest of all providers in the research.
Halifax justified its high charges by saying that: "In more than half of all applications customers will receive 'the best' advertised rates."
However, this means that Halifax is only doing the bare minimum according to current EU and UK laws on credit-card rates.
Under these laws, the representative APR has to be exactly that: representative of the rate offered to successful applicants, with 51 per cent of those securing credit receiving the rate. And it must always be displayed in advertisements.
While the European and UK regulations are clear about representative APR, it is not so explicit over the "standard information" that lenders should make available to consumers pre-application and in particular these risk-based rates.
Most lenders follow the guidance of the UK Cards Association and disclose these risk-based rates in a summary box for new applicants.
However, an IoS investigation has found that some lenders do not publish their risk-based rates at all, leaving consumers potentially in the dark over the rate they are likely to receive. Barclaycard, probably the UK's most high-profile credit-card company, is one such lender, an approach criticised by consumer group Which?
"This means that consumers don't always know what rate they will be charged until they apply, which makes it harder to compare rates and shop around, and can have a negative impact on their credit report if they decide to cancel the application," a Which? spokesman says.
In response, Barclaycard – despite the fact that it is going against the industry norm – claims that its approach is actually better for customers. A spokesman says: "We believe that rather than supplying a large range of possible rates at the point of application, this [providing all rates after application] is the most transparent way to offer our products.
"Customers are never in any doubt as to the rate they will receive; if a customer isn't offered the rate applied for, we provide complete details on the alternative and keep this offer open to them for 90 days so they can compare against other products available from our competitors."
But this can leave consumers who choose to go elsewhere after the true cost of credit is revealed to them with a damaging imprint on their credit file.
Which? says: "We want banks to give consumers a better idea of the rate they are likely to be offered before they submit a full application, and use 'soft' searches that don't affect a customer's credit rating."
Andrew Hagger of Moneycomms concludes we need greater transparency in the industry or else consumers could find themselves in the rate line of fire. "The full range of rates should be visible to consumers before the application process begins, otherwise it gives the lender a free rein to charge far higher rates than its rivals without anyone but the applicant being any the wiser," Mr Hagger says.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 I'm A Celebrity 2014: Jungle security stepped up after murder and 'suspicious death' near to camp
- 2 To help fuel their propaganda machine against the poor, our government has now decided to redefine the word 'welfare'
- 3 Jeremy Hunt: 'I took my children to A&E because I didn't want to wait for GP appointment'
- 4 Girl, 7, gets Tesco to remove 'stupid' sign suggesting superheroes are 'for boys'
- 5 This letter from a reader explains why women can’t play football
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
Ukip says babies born to immigrants in the UK should be classed as migrants – which would include Nigel Farage’s own children
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
Exclusive: UK approved £7m Israeli arms sales in six months before Gaza conflict
iJobs Money & Business
£16000 - £18000 per annum: Langley James : IT Support; Helpdesk, VMware; Manch...
£35000 - £450000 per annum + £3k car, £70k ote: h2 Recruit Ltd: Do you want to...
£Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...
£Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens