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We’ve got zero confidence in sneaky ‘0%’ credit card deals

Credit card close-up

When we asked people how much a ‘0%’ balance transfer would cost – close to 0% of them actually got it right. I’m not sure 100% confusion was what they were going for.

I always find choosing a credit card a bit of an ordeal. There are so many different things to weigh up: the perks, the rates, the time frames… the list goes on. It’s easy to get confused and the risks of making the wrong choice are high.

And it turns out I’m not alone. Our latest research for our Sneaky Fees and Charges campaign discovered that only one in 20 people understood the true cost of so-called ‘0%’ balance transfer deals. And seven in 10 wrongly thought the transfer was free, even though we showed them the fee.

We also asked people to pick the cheapest credit card deal for someone making a balance transfer. Only a third picked the correct card and another third picked a deal that would have cost them three times as much in fees.

Action from the financial regulator

With levels of understanding so low and the potential costs so high (customers pay around £334m a year in balance transfer fees) we want action on sneaky credit card deals.

That’s why we’re calling on the Financial Conduct Authority to step in and scrutinise these 0% balance transfer fees as part of its investigation into the credit card market. Ultimately we want the financial regulator to take action – one option could be to ban credit card firms from advertising deals as ‘0%’ when there’s still a fee to pay. Another could be to show the fee as a monetary sum rather than a percentage.

Balance transfer deals are of course really handy if you want to pay down debt, but if we can’t understand their true cost these deals could increase costs rather than reduce them.

Have you been caught out by a hidden credit card fee? Would you like to see the back of 0% balance transfer fees?

Comments
Member

@jane-wallace, jane – you were going to provide details of the survey questions as a number of contributors questioned the basis of the debate. Your intro says ” when we asked people how much a 0% balance transfer would cost” ….and ” our latest research…..discovered”. So it should be straightforward for Which? to give us the details.
Or… was it not Which?’s research at all? Are you using someone else’s data? Was Which? not responsible for the structure of the research?
I’m sure you can put my mind at rest that Which? conducts its own work or retains full rights to any work it commissions and properly controls.

Member

Hi @malcolm-r,

we’ve now published the report in full on our policy page, you can find it here: http://www.staticwhich.co.uk/documents/pdf/which-briefing-into-the-credit-card-market-418203.pdf

As you’ll see it includes examples of the mock bills and questions we used with participants and from which we used the responses to inform the report.

Member

I’ve just had a variant on 0% fee cards through the post. My existing credit card provider will allow a major purchase to be transferred to a “plan” for a fee, ranging from 3% to 8% depending on the how long I choose to repay – from 6 months to 24 months. No interest charged. If I repay early a commensurate proportion of the fee is refunded.
If I wanted a loan for a large purchase it seems one way to consider. The point was that the leaflet explained the terms clearly and thoroughly – as far as I could see.

Member

Thanks for the link to the research, Jane. This conversation heading says “….sneaky 0% credit card deals”. The implication is that credit card providers deliberately mislead us.

I have looked online at 9 typical providers offering balance transfer cards. All prominently show the 0% interest and the transfer fee (as a %). Reading these I see no attempt at deception. Nor was it not clearly stated on ones I have received through the post.

The issue seems to be, from your report, that people either don’t read them, turn a blind eye to them, or do not understand what % means. How , when presented with a simple, clear scenario (transfer £2400 for 24 months to a card with a transfer fee of 1%) only 4 people in 100 got it right? Either says something about our education system or something defective somewhere else (maybe in the way the survey was conducted?). It rather conflicts with an earlier statement that 73% of balance transfer users made the correct choice of the best card.

I am appalled at the apparent ignorance you portray and clearly if it is true (if) we need to present information in a better way. But that is far from the same as suggesting that credit card providers are “sneaky”.

It may be that the suggestion made of putting the fee as £ may work. But what figure do you quote? It will depend on the balance being transferred. A 2.79% transfer fee could also be shown as “you will be initially charged £27.90 for every £1000 you transfer”, but this can be misinterpreted. You might think it applies to whole multiples of £1000, so £1999 is still only £27.90. And it assumes everyone can multiply numbers together. Which? from some past reports think they can’t. I am more optimistic.

I support using this research to make things as easy to understand as possible. But if people do not read information there is little that can be done.

I’d campaign for basic finances to be taught in school to get our population more numerate. I would be careful though to always put the blame on financial institutions. Here I think it is misplaced for an eye catching headline. 🙂

Member
laurie atterbury says:
11 October 2015

0% means nil interest for the loan period. There is a one off fee based upon the % of the amount being transferred. I have always found the terms of the banks very clear and are anything but “sneaky”. Attention grabbing headlines again?

Member

I looked at Which? best credit card selector and chose 0% balance transfer. It came up with 119 cards. However, i wonder whether your listing does not give confusion to some – as the survey listing also might. The first column gives the deal period, with explanation. The second column gives the transfer fee, also with explanation. Then comes a column with APR – not relevant unless you go beyond the deal period, but the explanation does not say that. Perhaps a tweak is needed?

I’d still like to know why “Sneaky” has not been removed from the headline.