Balance Transfer Fees - Illegal?

Idiophreak

pqrdef wrote: »

As you say, this is loan rate territory, and a low-rate credit card might work out cheaper than the 0% card.

...indeed...

So surely it has to be accepted that this is at best counter-intuitive and at worst deliberately misleading...Consumers shouldn't require spreadsheets to tell them if a 0% deal is cheaper than a 3% deal...

I also wonder whether there's any other reasons behind this "reclassification"...I don't know if "fees" are subject to any different tax laws or cash flows within the bank or anything like that....Must be a reason the banks are doing it.

Idiophreak

Hominu wrote: »

I don't see the problem with that as when it comes to sign the agreement, it'll be clearly pointed out to the customer:

Final price without credit: £11,000
Final price with 24 months interest free credit: £13,739

It's just false advertising...

If you were in Tesco and something said "buy one get one free", how would you feel if you got to the counter and they "clearly pointed out" the 30% handling fee that applied?

sfax

pqrdef wrote: »

Hmm. A BT with "0% interest" for 12 months and 3% fee would work out at 3% APR if you didn't have to make any payments until the end

In what way? If you don't make any payments, the APR is proportional to the term of the loan (i.e. the amount of time you borrow the money and pay 3% on the starting amount). If you did this for 1 year it would be 5.5% APR equivalent. If you did this for 5 years, it would be 1.2% APR.

You always have to make the minimum payment and if this was 1%, the APR would be 5.45%. If you only made the 1% minimum each month and got 5 years of identical back to back deals like this, the overall APR would be 4.77%. If you did this for 10 years with 10 back to back deals, it would still be 3.85% APR

thenudeone

Idiophreak wrote: »

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

Mainly for exactly the same reason that if a phone shop offers a phone for £360 no-one would touch it; but if the offer a "FREE PHONE" on a £15 a month contract for 24 months, people are happy to sign up.

And also because it's not interest based on the running balance, but a fixed fee.

As long as the terms are clear, you can't blame companies for changing the way the offer products to pander to people's inability to understand basic numbers.

sfax

thenudeone wrote: »

pander to people's inability to understand basic numbers.

lol


The other factor is time. If you're getting a new credit card, you have plenty of time to either work out how much it will actually cost you, or ask someone else if you don't understand it.

Glancing at a headline rate and not seeing the fee next to it (now matter how small it is) and then blindly applying under the assumption there is no fee is a bit foolish really

Herzlos

Idiophreak wrote: »

I agree that it's probably still a good deal...but I'm unsure how it can be described as "interest free"...they're charging interest! They're just calling it something else...

They started calling it 0% instead of free, because it's not free though they aren't charging interest.

The fee is based on the transfer balance and the charge doesn't change no matter how much you pay off over the offer period. It's doing exactly what it says on the tin and seems pretty clear.

It wouldn't hurt to give an equivalent APR though, based on just making minimum payments over the life of the offer, on the assumption that when the offer ends the customer will either transfer again or start on a new rate that'll completely skew the APR.

sfax wrote: »

Glancing at a headline rate and not seeing the fee next to it (now matter how small it is) and then blindly applying under the assumption there is no fee is a bit foolish really

Even if you applied assuming it to be fee-free, you'd find out your mistake before any transfer has happened; you'll be told the fee before confirming*. So even if you're caught out and don't want to pay a fee, you don't have to make the transfer.

*At least I have been on every transfer I make, and I do a lot of card juggling.

opinions4u

They introduced APRs to give consumers a fair comparison tool.

Excluding BT fees from this undermines the reasons for displaying APRs.

I'm gobsmacked a regulator or voluntary code of conduct has failed to get to grips with the status quo.

Hominu

Idiophreak wrote: »

It's just false advertising...

If you were in Tesco and something said "buy one get one free", how would you feel if you got to the counter and they "clearly pointed out" the 30% handling fee that applied?

I don't see how that analogy is even close to what is being discussed.

You are simply deferring payment for a fixed fee instead of being charged interest on monies owing. Simpler for the customer to work out and simpler for the card issuer, as its a fixed balance for the entire period.

I bought a Sofa a few months ago and it was basically the same deal: You could buy it at the advertised price with interest free credit for 12 months, or you could get a discount if you paid there and then. So the fee was included in the price, and they had the advantage they knew the fee they were adding, but the customer didn't, so could adjust to whatever the customer was willing to pay. Customer just sees "discount" rather than "fee".

Idiophreak

Hominu wrote: »

I bought a Sofa a few months ago and it was basically the same deal: You could buy it at the advertised price with interest free credit for 12 months, or you could get a discount if you paid there and then. So the fee was included in the price, and they had the advantage they knew the fee they were adding, but the customer didn't, so could adjust to whatever the customer was willing to pay. Customer just sees "discount" rather than "fee".

So they actually told you that you could have more discount if you paid cash?

I really think saying "get 0% interest...if you pay 10% more" is really very shaky ground.

sfax

The fairest comparison IMHO would be to show the APR of a sequence of balance transfers where you pay only the minimum monthly repayment and then transfer the remaining balance onto the same deal again when the term ends.

E.g. £1,000 at 12 months interest free and a 3% handling fee with 1% monthly payments and a minimum payment of £5 would take over 17 years (17 BTs) to repay in full with an APR of 2.75%