"Scrap the farcical 'new official credit card APR examples'" blog discussion

drt406

FEWER people, please, Martin, not LESS people.

peterbaker

Interesting comment, drt406 ... it is all a question of education isn't it? ( http://www.usingenglish.com/weblog/archives/000060.html )

Learning by example is probably the way most people prefer their eggs, so I side with Martin on this.

I am totally against anything which adds nothing to understanding - like those tautologous (first time I've ever copy-typed that one ) examples Martin laid out.

But I also have great sympathy with Georgeous George's 'Borrowing on credit cards for more than a few months is stupid.'

Wordy examples which plainly expose the stupidity are perhaps the best way to get the message across.

However, I am extremely uncomfortable with the huge swing that has occurred in the last couple of years from total public intolerance of any published deal of greater than say 30% APR to one where any figure can once again pass unnoticed. I think it began to go the other way when a government sponsored scheme for sub-prime lending was introduced and someone realised that it started at around 30%. Before September 2008 I think most credit cards were of the order of late teens APR's with a few exceptions, overdrafts were early teens, personal loans if advertised were well sub 10% and some were around 6% and most applicants got rates of the same order as those advertised.

We are now in a credit market where customers who were in those deals have been tipped out on their heads and are being severely punished for using anything other than their existing mortgages to borrow. And we seem to be reeling as a public in the slipstream of a rapidly moving feast (for the banks) on all outstanding unsecured credit.

What is required now in terms of properly communicated rates will indeed be a lot different to what sufficed in the past because people are getting hurt badly very quickly because of the disgracefully high rates.

No matter what religious persuasion one might be, it is times like this when you can understand religious intolerance of interest above certain levels. Such high rates are clearly not in the public interest at all. It is no wonder that we are all scratching our heads about how they should be advertised ...

I think the answer might be that the advertisment of any deal that leads to any customers being baited and switched to a rate greater than 20% when they apply should be banned.

jamesd

oakhouse13 wrote: »

Why do these rules apply to MSE?

MSE receives payments for referrals to some providers, so it's treated as any other business that is acting as introducer.

oakhouse13 wrote: »

From how this site works:

"Anything that is on the site is here solely because it's the very best way to save money, based on independent, detailed and specialised journalistic research by members of the team. No one can pay to have anything put on this site."

But the editorial content is done without considering that.

Though what is featured and promoted may be influenced by the commercial considerations as well as the educational and other objectives that Martin has.

It's similar to magazine advertising: subject of an issue may be decided by marketing as well as editorial considerations, the editorial content will/should be independent and the advertisers pay to be in the issue or adjacent to specific editorial.

Rafter

Agree with you Martin - an APR - particularly when it goes above 100% is very hard for more than the 1% of people who are mathematicians or accountants to work out.

A pound note 'cost of credit' is more suitable.

What I would like to see though is an end to 0% balance transfer deals (with a 3% fee) for a short period, where they are obviously not 0% when there is a variable fee attached.

The bigger issue for me is whether the new Financial Conduct Authority will impose greater restriction on credit cards and other short term lending such as pay day loans to restrict the total cost of credit and the amount that can be rolled over.

For me, credit card limits should be no more than a couple of months salary and have a minimum repayment of 10%. If you need to borrow more or longer term you should take out a personal loan. Likewise payday loans should be limited to say a weeks income and the interest rate if you roll the loan over should be dramatically less.

That way, the amount of 'problem' debt people can get into is drastically reduced, losses in the industry are reduced and hopefully everyone pays a fairer price.

R.

Paulgonnabedebtfree

While we are on the subject of making things clearer, the fact that I play scrabble a lot less than Martin is clearly showing up.
I needed to look up "tautologous".

esuhl

Pfft. I agree - it helps no one to pluck a figure like £1200 out of the air, then combine a fixed (annual charge) and variable rate (interest) into either a meaningless or tautological amount.

It doesn't matter how good your mathematical ability is, it will always be easier to understand the cost if fixed and variable charges are presented separately (unless you want to spend exactly the example amount).

Obfuscating fees in this way robs people of the right to make an informed decision. It goes against the underlying principles of democracy and a free-market economy as it unfairly disadvantages those with poor mathematical skills - the very people most likely to end up in debt with their lack of financial awareness exploited by multinational billionaires.

Seriously, who at the OFT was receiving sexual favours in return for passing such regulations?

If the credit industry wants to play games, why not install roulette wheels at the point of sale to determine the charges?

kevroberts66

I just dont understand why credit card companies are charging 19% etc when the bank of england lending rate is 0.5%, Surely the credit card companies ould come down to at least 10% and this may encourage people to spend more and help the economy.

jamesd

Because they can and because economic troubles increase default risk.

They are cutting rates but in a different way: with balance transfer or 0% for purchases deals to selected customers. I have offers of that sort from three different card companies to encourage me to use their card.

If you want to cut costs one of the more useful things you can do is get an MBNA/Virgin card because those tend to have quite nice repeat balance transfer offers that an substantially cut borrowing costs. RBS/Natwest is also regularly doing that sort of thing for me and it seems that Santander may also - just offered me 3% fee and 0% balance transfer for a year. I have an excellent credit record and deals are specific to individuals so others may get deals on less good terms. Not taking the first offer you get can also help, it's common for cards to improve the offers if you don't bite the first time.

AnnGran_2

I agree that the only way to make the interest rate clear is to state the actual cost of the debt. Banks just want to keep as many people in the dark as possible. The more of us they can suck in, the greater the bonuses they will get. Who trusts the bank managers these days?

N1AK

kevroberts66 wrote: »

I just dont understand why credit card companies are charging 19% etc when the bank of england lending rate is 0.5%, Surely the credit card companies ould come down to at least 10% and this may encourage people to spend more and help the economy.

The short answer is: Because they don't need to.

The longer answer: There is plenty of competition in the credit card market. If offering a much lower APR made good business sense, one of the hundreds of competing companies would be doing it.

It seems CC companies get more business by using loss leading offers to get people to use the card (no rates for 6 months, free cuddly badger etc), and funding this by high rates on normal cards.

I think Martin's hope was that, had this regulation not been made uselsss, this would make it easier for consumers to compare options. As more customers start picking better offers, the companies offering cards would need to offer better products to retain/gain customers.