Questions Of Cash: 'Credit card transfer left me with fees and interest to pay'


Q I have an MBNA BMI credit card. In October and November I transferred £4,400 to it from other credit cards, paying a 3 per cent transfer fee. I have since paid off my monthly transactions, leaving what I thought was an interest-free balance to ride. But MBNA allocates payments received against the interest-free balance transfers, charging interest on my recent transactions. I have been charged interest totalling £135.98 for November and December on top of the 3 per cent balance transfer fees of £133. So to avoid charges I must clear the balance. MBNA says it informed me of its payment allocation process and I should have read the small print. The only concession MBNA has made is to reduce my interest rate from an APR of 1.8 per cent per month to 1.4 per cent. JL, Radlett.

A It is common practice in the credit card industry to apply all payments to the part of the debt that attracts the lowest interest, or no interest. "The vast majority of credit card providers follow the 'low to high' payment allocation method," says MBNA. It adds: "The reason we do this is because we believe it is fair that customers should pay off first the money they have borrowed at promotional or discounted rates. Promotional rates are offered to new customers and also to existing customers as a reward for being a responsible and valued customer. We make a clear disclosure to customers about payment allocation method through our summary boxes (online and on printed material), our terms and conditions and the back of every credit card statement a customer receives."

Despite this, your lack of awareness of this practice is shared by many consumers. While it can be sensible to transfer outstanding balances from cards where you pay a high rate of interest on to another card that offers an interest-free transfer, it is also sensible not to use the new card for purchases until you have paid off the transferred balance. Other spending might be conducted instead on an existing credit card.

It is particularly important that after making an interest-free transfer that you do not make any cash withdrawals using that credit card, as this will usually generate very high levels of interest charges, which will be outstanding until the rest of the debt is cleared. Consumer groups and the Government are unhappy with the way credit card companies apply payments to the lowest interest elements of the balance and the Government has published plans to ban the practice, which it is currently consulting on. The only credit card companies which don't apply payments to the lowest interest first are Nationwide and Saga.

Q I travel overseas on a regular basis and as I don't like public transport I use car rental companies a lot. In recent months I've become bothered by the increase in costs associated with hiring cars – particularly the excess insurance costs. I know car insurance excess can be expensive, but have you any suggestions to reduce the cost of car hire insurance? TA, by email.

A You can greatly reduce the costs associated with hiring a car by independently obtaining cover for the excess for any damage to the vehicle. Buying a Collision Damage Waiver from the hire car company can still leave you with a bill of a thousand pounds or so if the car is damaged while in your care, because of the insurance excess (the amount you must contribute if your car is damaged while you hire it).

You can insure against paying this excess, but the cost can be high when taking out a policy through the car rental agency (typically over £10 a day). Insurance policies are available elsewhere that provide either annual or monthly policies to meet the excess costs. Insurance4carhire.com provides an annual policy for excess insurance in Europe for £49 a year, covering the policyholder and another six named drivers, providing they are aged between 21 and 74. Policies are also available for hiring cars in North America and worldwide.

Q My son recently received an email from Zoom Financial Services in Australia, offering him a job, saying that the company had found his CV on an online jobs board. He has been out of work for 12 months and initially thought this may be a definite job offer, but felt he should ask some advice before contacting them. Upon reading the email, I told him to delete it. Someone else may not be so lucky and could end up landing themselves in a real mess. MB, by email.

A You were right to advise your son to delete the email. Others have not been so lucky and have been caught out by a scam. There is a legitimate financial services company called Zoom in Australia (and others in Alabama and India) – but they did not contact your son. The people who did were criminals. The objective may have been to get an innocent person to operate a bank account that would in practice have been used to transfer the proceeds of drug sales or other illegal activities to accounts in other countries. This would potentially have led to your son being in severe difficulty with the police and might have given rise to a criminal prosecution against him.

Alternatively, the fraudsters might have been seeking your son's bank account details in an attempt to empty his account of any funds. The offer was superficially attractive – a basic salary of £1,500 per month, plus 5 to 7 per cent of all transactions conducted by your son on behalf of the criminals. But the golden rule is that any offer that appears too good to be true, probably is just that. Another rule to remember is that just because a website looks professional is no guarantee that it is not fraudulent and invented. Fraudsters are just as capable as anyone else of creating a website that is very impressive. Always make some checks on the legitimacy of a person or company before responding to an email or website.

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