Money Q & A: Is the Co-operative Bank playing fair with me?

I applied for a Co-op Bank personal loan of pounds 15,000. It has an APR of 9.9 per cent over five years and was approved with insurance of pounds 4,300 - extortionate, I thought. So I applied for the same loan without insurance, but this time the APR was 12.9 per cent. I was told that the lower rate applies only to loans with insurance. Isn't the Co-op misleading customers with a "low" 9.9 per cent APR if there is an unavoidable charge for insurance?

AC, London

Is the bank playing fair with its customers? Readers must come to their own judgement. The Co-op is always keen to trumpet its claim to be an ethical bank. Customers are bound to expect higher standards than might be found at other banks, and the Co-op must expect that the way it conducts its business will be more closely scrutinised.

The bank headlines its leaflet: "9.9 per cent APR - our lowest personal loan rate ever." It does then say that loans are available "from" 9.9 per cent APR. In fact, the range goes up to 18.9 per cent APR. It transpires that the 9.9 per cent rate applies only to loans of pounds 10,000 and over.

Looking at the pounds 15,000 loan over five years with a 9.9 per cent rate, the total cost comes to pounds 23,266, including the compulsory insurance charge. But the Co-op also offers a pounds 15,000 five-year loan with a 12.9 per cent APR, but without the insurance. In this case, the total cost is pounds 20,133, or pounds 3,132 less.

Look at it this way: deduct the pounds 15,000 you have borrowed from the total repayments. The actual cost of one loan is pounds 5,133, and of the other pounds 8,266.

The loan that works out more expensive costs 61 per cent more than the other, yet is sold as having an APR 3 per cent lower than the cheaper loan. Throughout the leaflet's table of example repayments, the more expensive loans are shown as having lower APRs.

This is the reason the bank gives: "As a responsible lender, we want you to enjoy your loan in the knowledge that your payments are protected if you become ill, have an accident or are made redundant. For this reason we are offering a discount of up to 3 per cent off the standard APR if you take the wise precaution of covering your payments against the unexpected with Repayment Protection Insurance."

So you pay less interest if you buy the insurance. But isn't it one of the key characteristics of the APR measurement that it takes account of all the compulsory costs of credit - not just interest but costs like arrangement fees and compulsory insurance? The Co-op says it has checked this out with its lawyers. The lawyers say the way the bank quotes its APR is correct according to the Consumer Credit (Total Charge for Credit) Regulations 1980.

The Office of Fair Trading, however, says this is a complex issue and the rules are open to interpretation. It follows that they are open to misinterpretation but each example has to be dealt with on a case-by-case basis. If you think that the Co-op has misinterpreted the rules, you can make a formal complaint to the trading standards department of the local authority in which the bank was carrying on this business.