David Prosser: New tricks from old dog Barclaycard

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

Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
people
Arts and Entertainment
Bianca Miller and Katie Bulmer-Cooke are scrutinised by Lord Sugar's aide Nick Hewer on The Apprentice final
tvBut Bianca Miller has taken on board his comments over pricing
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
PROMOTED VIDEO
News
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
News
in picturesWounded and mangy husky puppy rescued from dump
News
newsAstonishing moment a kangaroo takes down a drone
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    SThree: Graduate Recruitment Consultant

    £20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K - £45K: SThree: SThree Group have been we...

    Day In a Page

    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'