/ Money

Have you been caught out by your credit card?

Figure leaning on credit card

With some 56 million credit cards in issue in the UK – that’s 70% of all European credit cards – it’s fair to say we Brits are pretty attached to our plastic. But is the industry serving us as well as it should be?

That’s what the Financial Conduct Authority (FCA) will be asking as part of its investigation into the £150bn credit card market.

Compared with some high-cost credit options, credit cards might seem pretty innocuous. But they’re not without their problems. In fact, in his speech last week, FCA chief executive Martin Wheatley referred to cards with low limits and high APRs as ‘payday loans with plastic’.

Focus on customers in financial difficulty

With nine million people considered to be in serious debt, the FCA has said its investigation will pay particular attention to how lenders treat those in ‘the most vulnerable circumstances’.

The regulator also highlighted the problem of ‘at risk’ households owning multiple cards and revolving multiples balances month by month.

Our research found that 44% of borrowers don’t repay their credit card balance in full every month – this includes 12% who only pay the minimum, which of course means it takes much longer to clear the debt.

Credit card catches

No matter what your financial circumstances are, too many credit cards appear to be designed to catch customers out.

When you apply for a card, for example, it’s reasonable to assume that you’ll be offered the advertised APR if accepted. But only 51% of successful applicants need to be offered this rate. We think lenders should make it clearer that some customers will be offered a higher rate than advertised.

We also think it should be easier for customers to compare different credit card deals. For example, it’s unlikely you’d know that a 0% balance transfer deal with a fee of 4.9% paid off over six months is the same as a typical credit card APR of 17.9%.

We’d like to see the FCA investigating how lenders can help put people in control by providing clearer information, stopping excessive penalties and encouraging people to shop around without it damaging their credit rating.

Have you been caught out by your credit card? What would you like the FCA to look into as part of its investigation?

Comments
Profile photo of ArgonautoftheSeas
Member

I’m never in debt, use just ONE card for purchases
paid in full each month, but I’m a careful spender
unlike some people that are less frugal with their
liabilities having multiple cards for whatever
purposes.

I do not live beyond my means.

Profile photo of briansg
Member

I would recommend having two cards which are paid off in full each month. Then, you have the convenience of not carrying much cash without the risk of embarassment if one of your cards is blocked for any reason (eg suspected fraud by a third party), particularly if you are not in a position to spend lengthy periods on a phone to the card provider while you establish the cause of the block, and possibly await delivery of a new card. This is particularly the case if you use a credit card when abroad.

Profile photo of ArgonautoftheSeas
Member

It happened to me once causing some degree of embarrassment
at checkout…. demanded recompense that lender paid up in full
w/out any questions… for their own stupid idiotic mistake!!

Profile photo of ArgonautoftheSeas
Member

Always carry enough cash just in case….

Profile photo of wavechange
Member

I pay my credit cards by direct debit, so there is no danger of paying extortionate interest charges, assuming that there are funds in my current account.

I would like to see customers and not the banks setting the credit limit on cards and having to request that this limit is raised if necessary.

Profile photo of wavechange
Member

I was only caught out twice by my credit card. The first time, I did not receive the bill in the post, and I asked Lloyds TSB to refund the interest because I had always paid in full for 30 years. On the second occasion, I forgot to settle the bill because I was seriously ill, and I was horrified by the interest. That’s when I switched to paying by direct debt.

Profile photo of ArgonautoftheSeas
Member

To the extent payments are made in full each month, it makes good
sense to set up ‘direct debit’ even when had multiple
cards but no longer… the responsible lender will
usually set a high credit limit to the extent income shall
allow…. but will adjust it correspondingly downwards when
spending patterns dictate otherwise… the credit card user
must be in full total control of his finances in any event.

Profile photo of malcolm r
Member

I use a credit card for convenience – not for getting into debt. It saves carrying too much cash and at the end of the month gives me a tally of my spending, which I then pay off in full. It seems to me we regard debt as a right – and credit as a means of buying things we cannot currently afford – or may not buy if we thought harder about it and had to fork out hard-earned cash. How to promote a culture of saving to buy might be a better use of time than promoting easier credit – that only serves to get the “vulnerable” into more debt.
The trouble is, reducing credit quickly will damage the economy we have gradually created that depends on spending money we don’t immediately possess.

Member
Rico says:
10 April 2014

APRs should be capped and not doubled overnight.

CLEAR warnings should be given on significant changes such as bringing forward the due date or reducing the limit (Both techniques to induce charges)

Profile photo of william
Member

I’ve had credit cards for years and only once have I paid interest, but that was because I didn’t read the statement correctly and sent the payment 3 days late. Needless to say when I realise my mistake when I got the next bill I overpaid it immediately and have paid all bills via direct debit since.

I did find it odd that they’d kept upping my limit without me asking but it never made me spend more than I wanted to anyway. Only once have I asked to have my limit up, enough to buy a car and have the previous outstanding on it at the same time. So I now have a card with a £20k limit and I’ve been unemployed 3 + years. Which means I have almost no chance of getting a new one. So I’ll just keep the other 3 cards just in case 🙂

Profile photo of John Ward
Member

Credit cards are a great convenience and can assist with personal financial management for major expenditures if monitored carefully and within the overall means over a reasonable period. Some people get into trouble because, after embarking on a major ‘one-off’ purchase on their CC, they carry on using the card for their usual spending levels. It really is best to put the card away until the major item has been paid for, or at least the bulk of it. Obviously, this requires considerable self-discipline which does not come easily it seems nowadays. Better education on money management is required, and on the effects of compound interest on debts. Lots of CC users have no idea how the interest on unpaid balances accrues [starting from the purchase date not the bill date] and get a nasty shock in subsequent months. Over-payment is the only way to get back on track. Early part-payment, as soon as funds are available, is also a good way of restraining debt accumulation. Any credits to the account, however small, will make a worthwhile difference. The card issuers need to be more responsible over credit limits, though, and adopt a more prudent approach to setting limits and never increase them unless a proper request has been made and diligently considered in the light of the customer’s income and outgoings. I would also questionwhy there seems to be no limit on the number of credit facilities a single individual is allowed to have.

Profile photo of John Ward
Member

I should have added that credit card companies also have a nasty habit of ‘re-pricing’ credit card interest rates as soon as the card-holder changes their debt level, for example, by using it for a major purchase. This is generated automatically and probably comes at just the worst moment. I expect these ‘re-pricings’ [weasel word] are always in the upwards direction and it probably requires considerable perseverance to get the interest rate back down again as soon as the debt has been repaid, or at least the level of debt [they call it the ‘balance’] has returned to the previous norm. These re-pricings are compulsory and are only avoidable if the entire debt plus the accrued interest is repaid in full. So just when people need a bit of help to spread the payment for something over two or three months, they get clobbered with a hike in the interest rate. ‘Credit
card’ is another weasel word: ‘debt card’ would be a more accurate description [with ‘debit card’ renamed an ‘instant payment card’]. And ‘outstanding debt’ should be substituted for ‘balance’. People might then have a better idea of what they are doing and how they’re managing their money.

Profile photo of JNB
Member

Convenient though credit cards are, both the banks and the credit card companies use outdated computer systems that are unable to keep up with credit card usage. These systems also use unsophisticated algorithms that keep blocking cards on the grounds of “a security concern”. I cannot remember how many times I have been in a foreign country and had a payment by credit card refused and asked to call the card company because it could be a fraudulent transaction. And this is despite having called the card company in advance to provide precise dates and countries being visited. The other nonsensical excuse they give for blocking a transaction is “other customers have had their cards used fraudulently, so we we thought we would assume yours had been stolen too!

Its all too pathetic. Perhaps if we paid the credit card executives higher bonuses the situation might improve.

Profile photo of wavechange
Member

Like many people, I use credit cards because they are a convenient form of payment, they offer can offer protection on certain purchases and it gives me time to ensure that the bill will be paid on time. All this costs nothing if I avoid using a credit card if a company makes a surcharge to offset what the credit card company charges them for providing payment services.

On the other hand, my bank would charge me a fortune if I borrowed the same amount of money that I routinely spend on my credit card. The bank has the benefit of a regular monthly payment (at one time my salary and now my pension).

We live in a crazy world. 🙁

Member
John Dibble says:
27 April 2016

I have three cards, an excellent credit rating and have been pestered by Barclaycard and HSBC with 0% Balance transfer offers. Earlier this year I wanted to pay for a holiday but did not want to take investments out to do so as the Stock Market was down. I weighed it up and applied for a “0%” deal with HSBC for 20 months, knowing that there was a 2.9% fee. They even rang me to check ID etc. in view of the amount. What no-one told me was that any subsequent purchases on that card would not have the usual interest free period until the whole balance was paid off. It is not at all explicit in their T & Cs; it is even difficult to locate the obfuscated paragraph. I think people should be made more aware of this and agree with Which’s campaign re. banks hidden charges.