It’s a subject that makes my blood boil. Credit card rate hikes.

It’s something that has gotten me very close to the point of cancelling the direct debits to one of my card issuers and refusing to accept their extortionate rate rises but that would ultimately do me more harm by tarnishing my credit file so it’s out of the question for the time being.

When a rate that has been steady at about 16.9% gets massively increased to 29.9% without any justification it makes me wonder why I’ve been such a good customer all these years and never missed a payment, exceeded my limit or done anything else that could lead the card issuer to perceive me as a risk.

Customer loyalty rewarded by penalty.

Such an adorable way to run a business.

And a massive business it is too. It’s behind the issue of a large proportion of the cards in circulation that are simply rebranded ‘affinity’ cards.

They may argue that an increase in the cost of borrowing means they have to pass on that increase to their customers. But that’s not true so I don’t buy that for a minute.

It’s profit mongering of the worst kind and as I said before, it makes my blood boil.

In protest I actually wrote to the card issuer to request a copy of the signed credit agreement and they were able to oblige. I wrote in a previous post that I wouldn’t try to wriggle out of the debt but after being penalised for my loyalty I thought I’d try my luck.

Unfortunately, this particular four letter card issuer has historically been very hot on keeping records so it might well be a waste of time trying to contest the original agreement.

Next step was to call them up and complain about the 56% rate increase.

56%!!! How kind of you, you four letter credit card company…

To my amazement they were unable to drop the rate back down to its original level but on one segment of the balance (it’s split between transfers and purchases) the customer service adviser was able to shave a whole 6% off!

6%! Just by complaining!

Are their rates *&@!! arbitrary?

ar·bi·trar·y – /ˈärbiˌtrerē/ – Adjective

1. Based on random choice or personal whim, rather than any reason or system.

Do they have a team of people who wake up one morning and think, “I know, let’s not care about our customers, lets just worry about the shareholders and see how much we can squeeze out of the customers so we can brag about our financial stability in a time of economic turmoil.”

And then they throw some darts at a board pinned with interest rates. Or, they look at a customers existing rate and think, I know, we’ll hike that one up by 56%, ha ha!

It’s shocking to know you can phone up this four letter card company, have a moan about the rates and they’ll drop them by as much as 6%.

They are clearly just charging as much as they can get away with.

It seems at face value to be just about greed because if they wanted to reduce their exposure to risk they could just lower interest rates and increase minimum payments so that debts are paid off quicker.

But if you dig deeper, this four letter card company is owned by Bank of America and we all know how well the American banks are doing.

But lo, the share price of MBNA (oops I let it slip) is almost the same as it was at the height of 2007! So, it’s all about the greed.

http://en.wikipedia.org/wiki/MBNA Mentions something called the “Great MBNA Interest Rate Escalator Trick”

More about that here: http://www.consumeractiongroup.co.uk/forum/showthread.php?114133-The-Great-MBNA-Virgin-Interest-Rate-Escalator-Trick/page7

The above link is to page 7 of  a discussion about this and I’ve copied a portion below that sums it all up very nicely:

An imaginary call to MBNA:

CAGGER: [Switches on Recorder] Hello MBNA, why have you ramped my Interest Rate into Orbit then?

MBNA: Let me explain: we had to do this, you see, because we were a bit short this Month.

CAGGER: That makes two of us. Explain why?

MBNA: We have bills to pay, you know, great big humongous ones. Our phones never stop ringing, beastly Bond Holders keep demanding the Interest we promised them.

CAGGER: I meant explain why this is my problem.

MBNA: Let me explain: in the trade, we call this Securitisation. It’s all a bit complex and you wouldn’t understand.

CAGGER: Try me.

MBNA: OK, let me explain: once we’ve hooked you up for one of our nasty Cards, before you can say Jack Robinson, our beancounters extrapolate what we think we can screw out of you over, say, 5 years, then we add a bit on top to make it look really juicy. The aim is to invent a large enough figure to look really tempting when trying to convince Investors to buy in to your Debt.

CAGGER: Tell me more.

MBNA: Righty ho, here goes: once we’ve dreamt up a nice fat invisible future Debt figure, we flog this off to a little Company we have, one with no Offices or Staff, called in the Trade an SPV.

CAGGER: Wasn’t that a big Truck in Captain Scarlet?

MBNA: Eh? Ah, I see what you are getting at. No, SPV does not stand for Special Pursuit Vehicle! It stands for Special Purpose Vehicle.

CAGGER: So there’s a difference then?

MBNA: Oh yes. Our SPV then slices and dices your projected future Debt up into lots of little chunks called Bonds, and then flogs them off to Investors. The more little Bonds there are, the harder it is for any of the Bond Holders to give us a really hard time you see. Each one only gets a little piece of your ass, not the whole thing.

CAGGER: But what do they get then? I don’t suppose these Bond Holders buy these invisble Debt Bonds just for fun.

MBNA: No, of course not. We agree to pay them Interest. Now, here’s the really clever bit, we Pay them less than you Pay us! But, in return for this red hot deal, collectively, they give us a great big wedge of Cash up front…and you haven’t even spent anything yet! We plop that into a high interest account and use that to cover anything that you do happen to squander your Credit Limit on. At that stage, we haven’t had to use a penny of our own Wonga.

CAGGER: Amazing, and you thought of that all by yourselves?

MBNA: Sort of. It’s Industry Standard actually. Every banker we know is banging away at this. Anyway, it gets better. We fix the Interest Rate we Pay them, but we add a little gotcha into their Bond Terms to say anything we can get above that is all ours to keep. Every last bit! We call it an Interest Rate Strip…or something like that. Whatever we call it, it confuses the hell out of the Bond Holders anyway.

CAGGER: It certainly confuses me. So, let me get this straight, I’m not really paying you, I’m paying the Bond Holders?

MBNA: Sort of. This is where it gets even cleverer. We just collect the Payments from you, having sold your Debt to our SPV. Your money shoots through our accounts faster than grit through a Duck. All we need do is grab our agreed cut as it shoots past, plus anything else we can engineer on top.

CAGGER: On top? What…like Charges, such as over-limit fees, late fees, things like that?

MBNA: Yes, you’ve got it. Easy when you can see how it’s done. We start off paying the Bond Holders Interest and, to be honest, it’s hardly worth getting out of bed for at that point. It’s hard work at that stage, as we can barely cover the HP payments on the Bentleys with that paltry margin. So, we pump up the bit we can make on top. Whoosh, up goes your Interest Rates and, when you struggle and fall behind as we expect, we can then add Charges. Then use those charges as an excuse to pump up your Rates still more. It’s really very, very clever. Nothing up front, and loads of money comes straight at us. It works like clockwork once we get you over 20% Interest!

CAGGER: So what happens if I struggle to Pay?

MBNA: Oh, easy, we just Ramp Up your Interest Rates even more, and then whack on a load more Charges. We know you won’t last long at that point, so we may as well shaft you for all we can get, while we can get it. Be a shame not to.

CAGGER: But, if I stop paying, won’t the Bond Holders get a bit cross?

MBNA: Quite possibly. But we don’t really care.

CAGGER: Why not?

MBNA: Because that’s their problem. When we sold them the Bonds, er, I mean when our SPV sold them the Bonds, we made, er, I mean our SPV made, a big fuss about a thing called Bankruptcy Remote.

CAGGER: What does that mean when it’s at home?

MBNA: It’s really neat. The Bond Holders think they are safe, because we, er, I mean our SPV, tells them that the deal is poop proof both ways. If we go bust, then our Creditors can’t go chasing them for money. But, what it really means is the idiot Bond Holders can’t go chasing us for money when you go Bust! Ha, ha! Cracking stuff is it not!

CAGGER: Hold on. I thought you owned my Debt? Didn’t I see something that mentioned The Consumer Credit Act 1974, perhaps suggesting this thing is Regulated in some way?

MBNA: We don’t worry about that! We’re a Telephone Bank and governed by American Law.

CAGGER: Really? But don’t you need to own a Debt to take me to Court in the UK?

MBNA: I can see what you are getting at, but we’ve thought of that already. A bloke in our Legal Department met a chap in the pub who said that we can use an old Act from 1925, something to do with property. Anyway, that allows us to split your Debt into two bits.

CAGGER: Hold on, just how many Debts do I have?

MBNA: Just the one, but we pretend to split it into two bits, one called Equitable Rights, and another called Legal Rights. We sell the whole lot to the SPV, but pretend that we only sell the Equitable Rights to the Bond Holders, and pretend to keep the Legal Rights in case we need to grab your Home in Court when you can’t pay all of the Debt we have engineered.

CAGGER: Don’t the Bond Holders see through that one?

MBNA: Nope. We’ve thought of that too! We do sell them the whole of your Debt.

CAGGER: The whole of my future Debt you mean?

MBNA: Whatever. We sell it all to them anyway, lock stock and barrel, otherwise the Bond Holders would never Buy. So, our SPV knocks up some secret papers that allows them to claim full ownership of your Debt, no matter what happens to us. They just need to pull this out of their bottom drawer, and your Debt is officially all theirs, no need for us to do anything! They are not that stupid! They won’t part with a cent unless they are Buying the whole shebang.

CAGGER: Not Stupid? What, unlike me you mean. So, bearing in mind how stupid I am, please explain how you pretend the legal side of my Debt is still yours, when it’s not really?

MBNA: Dead easy! We use that 1925 Law of Property Act thing I mentioned, which says, I think, that provided we don’t tell you we’ve Sold your Debt, we get to pretend we have the Right to haul your ass into Court!

CAGGER: So, if you do tell me, as you have just done, that my Debt no longer belongs to you, then this is the actual confirmation of sale. In the Trade, I think you call that Absolute Assignment.

MBNA: Yes, you’ve got it in one! Once I tell you we’ve sold your Debt, we are stuffed, as we lose the Right to take Court Action against you!

CAGGER: Excellent. Next question: does the SPV or Bond Holder have a Consumer Credit Licence by any chance.

MBNA: No, of course not! Why do you ask?

CAGGER: Just idle curiosity. But, many thanks for confirming you no longer own the Debt.

MBNA: Oh…cock, did I say that!

CAGGER: You certainly did. Have a nice day [clunk, ends Call, switches off Recorder].

I am so looking forward to clearing the debt and disassociating myself. Or I might leave a small balance, say, £3 and cost them more in admin fees that they make. That’ll teach them!

Summer 2010 was a terrible one for the British travel industry as thousands of holidaymakers had their vacations disrupted through a combination of collapsed travel companies, threats of industrial action and even volcanic ash clouds!

So, as people’s thoughts turn to summer 2011 and with such uncertainty in the travel industry, does it make sense to book your holiday on a credit card?

Just over a month after Goldtrail’s collapse in July left thousands of holidaymakers stranded, another British tour operator, Kiss Flights, ceased trading leaving a further 13,000 people abandoned overseas.

Fortunately, Kiss Flights were part of the Civil Aviation Authority’s (CAA) Air Travel Organisers’ Licensing (ATOL) protection scheme and so most holidaymakers were able to complete their holidays and return to the UK with no disruption.

Also, as the company failed at the height of summer, the CAA also put in place arrangements to allow people to travel out on their holidays for the first 24 hours after the collapse.

On the downside, anyone that was due to fly after this 24-hour window would have had to go through the painstaking process of claiming back the money they spent on their holidays, a process that can take up to twelve months to complete!

But what protection is afforded to customers booking their holidays through companies that are not ATOL protected or, even worse, through companies that are set up with the specific intention of taking the money but never delivering the dream holiday?

It’s estimated that 30 per cent of holidaymakers booking online leave themselves open to becoming the victim of fraudulent travel operators.

This is generally due to the customer failing to check the authenticity of a site or through verifying their payment details on an unsecure web page, which means that third parties can intercept their credit or debit card information.

So what protection is out there?

If you book a package holiday, that is two or more elements of the holiday are booked together in a pre-arranged combination, then your holiday is protected under law and you will receive some form of recompense should things go wrong.

One thing to be aware of when booking a package deal is that some companies will split the invoice so that your flight and hotel is paid for separately and this will leave you without protection.

In addition, companies that offer just one element of a holiday, for example a budget airline company offering cheap flights, are not protected and nor are you protected if you book a hotel and flight through a budget airline as they are not covered by the bonding laws.

The best way to protect your money in this instance is to book your holiday on a credit card.

This means that you are automatically covered under the terms of your credit card agreement and your card issuer will refund any losses provided the credit card transaction bears the name of the company you have booked with.

Also be mindful that many companies charge a fee for credit card bookings and, whilst this makes paying on a debit card seem like the better option, debit cards do not offer any of the protection that credit cards do.

Another idea could be to book your flights with an airline credit card. These are, essentially, everyday credit cards with all the same terms and conditions, but offer such incentives as air miles or companion vouchers.

One thing is clear though, no matter where you’re travelling or who you’re travelling with, the credit card route is the safest way to go!

Airline Credit Cards

Article written by Les Roberts money writer for Moneysupermarket.com, the UK’s largest independent price comparison site.

How do credit card companies manage to offer 0% interest rates?

I haven’t spoken to any credit card companies about this so this is purely speculative but I would imagine they borrow funds at a set interest rate for a set term. They then take on new customers at 0% in the knowledge that some of those customers will not clear their cards each month and will make purchases as well as transferring balances at 0%.

These customers get charged a much higher rate of interest than the rate at which the card companies have actually borrowed the funds which subsequently covers the lower interest the card companies pay themselves.

Then there’s all the late payment fees and the balance transfer fees.

In addition to which, people (including myself) are getting royally shafted by interest rate hikes just because during a financial crisis/recession and reduced earning period only the minimum amount is being paid each month.

How is this fair?

It isn’t but so far I don’t see a way around it.

I could dispute the debt and try to get a copy of the original agreement and I am sorely tempted to do so but for two reasons:

1/ I used the money and I’m a responsible person (or at least I like to think so!)

2/ MBNA are pretty hot at keeping original agreements (so I’ve heard)

MBNA themselves phone me up asking me if I want to consolidate the debt into a secured loan against my house.

I’m starting to think this is borderline extortion!

This is what I think when I read between the lines of the letters they send:

 

Dear MBNA customer,

We can see you are only paying the minimum amount off your credit card balance each month and as the economy is suffering and we understand your income may have been affected, we’ve decided to hike your interest rate up to about 25% – 28% so it now costs you a lot more than it did.

But don’t worry, as a valued long term customer we’d like to offer you the opportunity for us to pass your details to our preferred secured loan partner who will take a share in your house until the debt is paid! We knew you’d be happy to hear that!

What we’ve actually done here is steer you into a predicament that could:

1/ Earn us commission for passing your details to our secured loan partner

2/ Get your debt off our books and makes us look good to our shareholders.

3/ Give us more money to use to snare more customers into taking one of our products

If you’d like to leave feedback on how you think you’ve been treated please fill out the form below:

On a scale of 1 – 10 how would you rate your experience (1 being excellent and 10 being really really excellent) please circle your response: 10 – 10 – 10 – 10 – 10 – 10 or 10

Yours mockingly,

MBNA

How do we get credit card companies to play fair?

Thanks to the introduction of Chip and PIN your debit and credit cards are “much less likely to be used fraudulently in the UK” according to Apacs, the UK payments association.

However, in order for Chip and PIN to be successful, we all need to continue to look after our PINs to keep them out of the hands of fraudsters because they are the key to your money if your cards are stolen.

As it is so important to your day-to-day finances, here are some tips on how to keep your PIN safe.

Keeping your PIN secret

• When you receive your PIN through the post memorise it and destroy the notification as soon as you can. If the automatically-generated PIN sent to you is hard to remember, change it to something you can remember more easily. You can do this at a cash machine.
• Never tell ANYONE your PIN, even bank staff. Nobody should know your PIN but you. If you receive an email or telephone call which asks you to confirm your debit or credit card PIN number, DO NOT give it as it is information that you will never be asked for.
• Don’t keep your PIN saved as a number in your mobile phone.
• Don’t write your PIN down anywhere.
• Whenever you enter your PIN use your other hand or even your body to hide the number entry from any hidden cameras or fraudsters’ prying eyes.
• If you suspect that someone has seen or learnt your PIN, change it as soon as possible. You can do this at a cash machine.

Protecting your PIN when shopping

• NEVER let your debit or credit card out of your sight when you are making a payment. Some fraudsters will try to ‘skim’ your card in a machine hidden out of view that will record your card details before it is put in the real card machine.
• Shield your PIN using your spare hand or body to keep it hidden from prying eyes or hidden cameras.

Protecting your PIN at the cash machine

• While at the cash machine, be aware of who is around you. If there is someone near you behaving in a suspicious way or just generally making you feel uncomfortable, cancel the transaction, take your debit or credit card and leave the machine.
• Look out for signs that the cash machine you are using has been tampered with. If you suspect that it has been messed with, DON’T use it and report the issue to the corresponding bank immediately.
• Never accept help from strangers when at a cash machine.
• Don’t allow anyone to distract you while at the cash point.

Source: http://www.compareandsave.com/

You can now take control of your credit card finances with the three new calculators just launched on compareandsave.com.

All three of our new calculators are easy to use and will display your results in writing, as a graph and in a table, giving you the information you need to know what to do next.

We have also updated our Balance Transfer Calculator so it now has the functionality to allow you to input more than one existing card balance when working out how much you’d save by moving your debt.

It’s only by using credit card calculators such as these that you can really get a true idea of how much it could cost you if you don’t manage your balances properly.

Credit Card payoff calculator – http://www.compareandsave.com/tools/calculators/credit-card-calculators/credit-card-payoff-calculator/

Use this great new tool to see how long it will take you to pay off your current credit card balance and also to set a repayment plan if you want to clear the balance in a set number of months. You can also set a desired monthly payment and work out how long it will take to pay off your credit card balance based on how much you can afford each month.

Balance transfer vs low rate credit card calculator – http://www.compareandsave.com/tools/calculators/credit-card-calculators/balance-transfer-vs-low-rate-credit-card-calculator/

Last year saw the launch of low rate credit cards which offer a low admin fee and a low typical APR of around 6-8% on your credit card balance for a set amount of time. However, along with the launch of this new type of credit card came the question of whether it is cheaper to use a low rate credit card or a balance transfer credit card. This calculator has been designed to answer that question for you.

Minimum repayment credit card calculator – http://www.compareandsave.com/tools/calculators/credit-card-calculators/minimum-repayment-credit-card-calculator/

Did you know that paying off just the minimum repayments towards a balance of £2,000 on a credit card charging 15.9% would take 29 years and four months to pay off (2% minimum repayments) and cost you an extra £2,997.83 in interest fees? This handy credit card tool will show you the true cost of making minimum repayments and how long it will take you to clear your debt. You can also play around with it a bit and see what a big difference it makes if you increase your monthly repayments slightly.

In April, the Marbles credit card brand closed it’s doors to new customers.

I don’t remember seeing much in the way of publicity about this but what has come to may attention is the fact that certain existing customers of Marbles have been seeing their interest rate slowly rise.

I spoke to Marbles about this and although they are happy for customers to keep their card accounts and still use their cards for purchases, balance transfers etc. Some customers will be doing so at rates above 25% and in some cases over 29% after May 2009.

These rate rises don’t apply to all customers and in fact many customers may not have had a rate rise at all.

The reason given for increasing the rate on some customers accounts is ‘risk’ based on previous account management history. If the new owners of Marbles (SAV Credit Ltd – The people behind the Aqua Credit Card) consider an account to be poorly managed they increase the interest rate.

I have always thought if unfair to customers who may be experiencing some difficulty to be penalised with a higher interest rate making it even harder to meet the commitment.

I can however understand why people who manage credit well are rewarded with the best available rates but increasing the rate of an existing customer is completely different to offering high rates to new customers.

Customers who have been subject to a rate rise have been given the opportunity to close their account and freeze the interest rate at its current level before the rate rises in May. This would mean not being able to use the card anymore but who would want to at 29%?

Isn’t it a good thing that credit card companies are finally going to be stopped from increasing their customers credit limits without consent!

It’s like a breath of fresh air after a crazy time of money madness.

I’ve had the letters: ‘we’re happy to say we’ve increased your credit limit’.

My initial thought has always been ‘that’s nice’ and then it’s forgotten and the card stays in the drawer with even more credit available.

The ideal use of a credit card is one of convenience though, not credit.

Use it to buy everything and then clear the balance each month with your earnings. They are designed for 20th century living and make it easy to transact with modern business but they are a trap created by clever people who ultimately want your money.

If everyone who owned a credit card cleared their balance each month, the fat cat corporates would have to radically restructure their business model and find another way to make money. It’s people with outstanding balances who end up paying for the nice cars and big bonuses we’ve heard so much about lately.

The bank of England base rate is 0.5% but credit cards interest rates remain as high as they’ve ever been for many years.

The new laws wont be introduced until the Summer and they were announced by the current PM, Mr. GB with a pending election. So is it all smoke and mirrors? Or it could be the start of a ‘feelgood’ departure from a party who feels they may have already lost the next round. 

Somehow I think this move will get backing regardless of who is at the helm.

Read more about this in the news.

But is it a good idea?

On the surface the new Barclaycard ‘Breathe’ card looks fantastic for anyone that is environmentally concerned.

• 50% of profits donated to worldwide projects that help tackle climate change
• Discounts and low interest rates on selected greener spend such as money off insulation and discounts on bicycles at Halfords.

The profits are already being used to support a number of pioneering projects around the world such as solar panels for schools in the UK, renewable energy and forest preservation, and wind farms and hydropower in China.

It’s great to see companies doing this kind of thing and I think it’s about time it became a battle over who can do the most to save the planet!

Instead of bragging about how many billions people have, they should brag about how much penicillin they’ve supplied to refugee camps!

Anyway, back on track, the reason I question if the Breathe card is a good idea or not is because the profits Barclaycard are using could be reduced if the card is exploited by ‘rate tarts’ going for 0% offers.

For this reason Barclaycard appear to have opted not to enter the balance transfer war with the Breathe card and only offer a 6 month 0% apr balance transfer period.

However with Capital One offering a much more competitive balance transfer offer with only 9.9% apr typical (variable) it makes you think that Barclaycard (and other card issuers for that matter) could have offered even more of an incentive than their equivalent 14.9% apr typical (variable). But that’s another story…

In my opinion anything that does anything, no matter how slight, towards reducing human impact on the planet and enabling us to develop a sustainable planet can only be a good idea.

Keep up to date with the progress of the Breathe projects:

http://www.barclaysmicrosites.co.uk/barclaycardbreathe/3_0_project_goals.htm

Find out more or apply for the card

After reading a misleading advert regarding an M&S credit card offer, a UK consumer withdrew a number of Euros expecting to pay no interest until January 2008.

Turns out the offer was for ‘brand new customers only’ and their subsequent statement revealed £20 worth of interest.

Several calls and appeals later, M&S finally repaid the interest but not without trying to dodge the issue first.

Read the full story at thisismoney.co.uk

Could it be possible, that because there are a large number of websites advertising a particular product, they could affect how changes are made to that product?

For example, credit cards.

Some advertise 0% until May 200X…..

Some advertise 0% for 13 Months.

In order for the company advertising ‘May 200X’ to remain competitive, this needs to become ‘June 200X’ the following month.

Websites advertising the ‘0% until May 200X’ need to be updated every month in order to stay current.

So to make it easier for website owners (and, OK lets be fair, all the printed material and other advertising) to be up to date, all the time, it makes sense to advertise a fixed number of months for an introductory as opposed to a fixed offer end date.