Balance Transfer Fees - Illegal?

Idiophreak

I'm increasingly seeing "0%" offers come through with ever-higher balance transfer fees attached...some as high as 4 or 5% now...

To me, this is just false advertising - misleading consumers as to the true interest rate by hiding it in a fee.

Will balance transfer fees be the next bank charge / PPI reclaim? Surely the banks can't get away with hiding interest like this forever.

Is anyone aware of regulators etc looking into this?

Drp8713

Every offer I have seen says 0% interest for x months, x% fee.

They don't seem to be hiding anything.

You can't expect 0% on interest and no fee or they wouldn't make any money

Idiophreak

Drp8713 wrote: »

Every offer I have seen says 0% interest for x months, x% fee.

They don't seem to be hiding anything.

You can't expect 0% on interest and no fee or they wouldn't make any money

So why don't they just say "4% interest" instead?

Which is in bigger typeface on the offers you see? "0% interest" or "x% fee"?
I got one through from the Amazon card today 0% in bold face, size 14pt, something like that. 3.5% fee in the small print...maybe 6pt?

...And why would a fee be a percentage of the loan value? Surely if they're going to send letters, make phone calls etc (ie the things covered by "fees") these will be rather irrespective of the loan amount.

Banks used to do 0% offers with £0 fee...because quite a lot of the time people don't clear the balance before the promotion ends and then they can charge their 20% interest or whatever...

grumbler

Drp8713 wrote: »

You can't expect 0% on interest and no fee or they wouldn't make any money

I could a few years ago when it was very common.

izools

Idiophreak wrote: »

Banks used to do 0% offers with £0 fee...because quite a lot of the time people don't clear the balance before the promotion ends and then they can charge their 20% interest or whatever...

More to the point credit card companies used to allocate payments towards the lowest interest rate debt first, meaning any new purchases put on the account would continue accruing interest until every penny of the 0% balance transfer had been paid back...

grumbler

Idiophreak wrote: »

So why don't they just say "4% interest" instead?

Because the interest is calculated on the running balance, not on the starting balance.

brendon

Most people don't use the balance transfer feature of credit cards -- it's a separate feature and not essential to the use of the card.

dalesrider

Idiophreak wrote: »

I got one through from the Amazon card today 0% in bold face, size 14pt, something like that. 3.5% fee in the small print...maybe 6pt?

You mean this? here

All seems to be very clear to me and same font size... Well till you hit the real small print at the bottom.

Idiophreak wrote: »

...And why would a fee be a percentage of the loan value? Surely if they're going to send letters, make phone calls etc (ie the things covered by "fees") these will be rather irrespective of the loan amount.

The greater the loan, the greater the risk.....

Balance transfers are all done via payment systems. So no letters etc.

Just remember these are all very clearly explained.
I think the FCA will start looking at things like this in a whole new light and say no miss selling as it is clear what the charges are and you do not have to take up the offer.

chattychappy

Well I have some sympathy for the OP's position. Cards are well used to quoting APRs according to a standard formula. If a card has an annual fee then this must be built into the APR calculation even though it's unrelated to the balance. APRs must be prominently indicated.

I don't think there is any question of illegality or fees being refunded - I'm not aware of any present regs being broken. But I can imagine in the future CCs might have to calculate true APRs for BTs. This would take into account the length of the offer (or assume something in the case of LOB deals) and the amount of the required minimum payment.

Whilst on the subject of "the next scandal", a "gotcha" that might have to stop in the future is offering a BT deal and then cancelling it because of a missed/late payment. The general rule is that penalties shouldn't exceed the cost to the injured party. Parties are not meant to profit from a breach by the other party. £12 might indeed be fair/proportionate for a missed payment. I believe that taking away a BT deal is a disguised form of penalty and it's probably part of the business model that a certain proportion of customers will fall foul of this. I believe it's only a matter of time before it's challenged or the FCA (when/if they take over from the OFT) hold that such actions are unfair/disproportionate.

Idiophreak

dalesrider wrote: »

You mean this? here

All seems to be very clear to me and same font size... Well till you hit the real small print at the bottom.

No, like this:


Don't get me wrong...I'm not saying it's particularly unclear...but you have to admit the 0% figure is given rather more precedence than the 3.5% figure...and that just happens to be the one today...I've had them through previously where the handling fee has been mentioned over the page...

I just don't see the point in sending a great "0%" offer and then slapping loads of interest on it, if not to try and deceive people.

dalesrider wrote: »

The greater the loan, the greater the risk.....

Balance transfers are all done via payment systems. So no letters etc.

Just remember these are all very clearly explained.
I think the FCA will start looking at things like this in a whole new light and say no miss selling as it is clear what the charges are and you do not have to take up the offer.

Right...the greater loan, the greater the risk...hence the interest is calculated as a percentage, rather than a flat fee..."Handling fees" however, aren't designed to include "risk" - they're supposed to cover the bank's expenses in providing the loan, which isn't as variable.

First definition I found:
"An amount charged for physical labor associated with processing a product or in processing paperwork; a processing charge or fee."

Where does it say anything about risk there?

I really don't see how this is any different to the overdraft fees...there they were taking what was, fundamentally, great chunks of interest and covering it up as a "fee"...now credit card companies are doing exactly the same...I'm just not sure why they aren't being smacked down in the same way because of it.

Idiophreak

chattychappy wrote:

I don't think there is any question of illegality or fees being refunded - I'm not aware of any present regs being broken. But I can imagine in the future CCs might have to calculate true APRs for BTs. This would take into account the length of the offer (or assume something in the case of LOB deals) and the amount of the required minimum payment.

Exactly..I'd expect for them to have to display "equivalent APR" or something similar.

If you look at PDLs, as an example, they'll charge you £20 for borrowing £100...but they can't just hide the interest rate, they still have to show the 2000% or whatever it is.

So, food for thought:

Would it be OK for PDLs to advertise 0% loans of £100, but with a £20 handling fee? (and, presumably, further "handling fees" should you default on a payment)...Then they'd not be obligated to show the true cost of the loan to the consumer. Fair?