David Prosser: New tricks from old dog Barclaycard
Saturday 03 June 2006
Does Barclaycard, Britain's biggest credit card lender, think its customers are stupid? This, remember, is the company whose chief executive famously told MPs he had warned his own family that credit cards were an expensive way of borrowing.
The lender's latest insult to customers is a significant increase in the cost of borrowing on its plastic. Around 10 per cent of Barclaycard borrowers - roughly 900,000 customers - will be affected by increases of up to 5 per cent to the standard interest rate on the card. In some cases, customers will now pay as much as 29.9 per cent.
In addition, all customers will have to pay a substantially higher rate of interest when they use their Barclaycard to get cash from a cash machine. The rate on cash advances is rising from 21.9 per cent to 27.9 per cent - almost a third more.
How does Barclaycard justify these swingeing hikes? After all, the Bank of England's base rate has not risen since August 2004.
In fact, it turns out that it's all the fault of the nasty old Office of Fair Trading that Barclaycard borrowers face rising bills. In April, the OFT told the credit card industry that the fees it charged customers for late payments or failed transactions - often as high as £30 - were illegal as well as outrageous.
Under consumer protection laws, lenders are allowed to cover their costs when customers miss payments or exceed their borrowing limits, but they must not make a profit on penalty fees. On this basis, the OFT said it could not see how penalty fees of more than £12 could possibly be legal.
Six weeks later, Barclaycard and its colleagues in the credit card business say they still think the regulator's interpretation of the law is wrong. But they don't have the guts to take the OFT on. Barclaycard this week sheepishly announced it would cut all its penalty fees to £12 with effect from 1 August (other lenders are announcing similar reductions). The sting in the tail, however, is the interest-rate increases, which were announced at the same time.
That Barclaycard now feels the need to raise the cost of borrowing exposes one of the lies that credit card lenders put to the OFT when they were campaigning against a crackdown on penalty charges.
Consumer groups have argued that penalty charges have risen to £25 or £30 simply in order to inflate lenders' profits. While many lenders have been competing fiercely on headline interest rates, they've quietly been recouping the cost of this price war with higher fees for late payments.
Naturally, Barclaycard and its rivals reject this argument, not least because their lawyers understand the position on punitive contracts just as well as the legal department at the OFT. But the fact that Barclaycard is now seeking to raise additional revenue to replace what it will lose on penalty charges tells you everything you need to know about the realities of the situation.
This isn't just about a few pennies. The OFT estimates credit card lenders took around £300m in penalty fees last year, with an average charge of around £22.70. Assuming all charges fall to £12, the industry's total revenue from the fees would fall by almost £160m. If other lenders follow Barclaycard's example, this is what borrowers will now pay in extra interest.
To add insult to injury, customers who can least afford to pay more are likely to be hardest hit. Anyone who pays their bill in full each month won't pay any interest at all, so the rate applicable on their cards is not relevant. Plus, the 10 per cent of Barclaycard customers hit by rate increases on standard spending just happen to be those currently paying the highest rates - that is, those with less good credit ratings.
The industry's defenders argue that if people don't want to pay high penalty charges, they simply have to make sure bills are paid on time and that they don't exceed borrowing limits.
True enough, but that argument rather misses the point. The OFT didn't rule against lenders because it was concerned about whether borrowers were being unfairly charged. The regulator simply warned that credit card companies were breaking the law.
Deprived of the opportunity to cash in on illegal behaviour, Barclaycard now feels compelled to turn the screws on its customers another way.
n n n This week's report on the failings of the tax credits system predictably produced some catastrophic headlines for the Government and, in particular, the Chancellor, Gordon Brown, who invented the scheme. One in two tax credit calculations made last year was wrong and 1.9 million families were told to repay overpayments, with serious financial hardship often the result.
However, while it would be stupid to present the tax credits scheme as a success, dogged as it has been by problems since its launch in 2003, we should not get rid of it just yet.
The theory of tax credits is sound. They boost family income without acting as a disincentive to work - a major advance on all previous means-tested benefits. Moreover, there are signs that the Government is finally getting to grips with the flaws in the scheme.
Last month, the amount of extra income that families may earn without having to make an immediate declaration to HM Revenue & Customs was raised to £25,000. That should significantly reduce the number of overpayments made in future.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...
£20000 - £25000 per annum + OTE £35K - £45K: SThree: SThree Group have been we...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
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