Do we need to change the way credit cards can charge interest?

Synthespian

Elliott.T123 said:

Synthespian, I will try to answer the theoretical question ignoring T&Cs.

My view is no nothing needs to change, while some people may see it as unfair others see it as a fantastic service that is being offered giving them a free line of credit and some strong consumer protection. It will depend on which side of the fence you are on, if you can pay off your card in full every month and know you are never going to forget etc then why would you want things changed. If you are unable to then yes you may well want to change things.

As someone with a direct debit set up I know I will never miss a payment so I really don't want the system to change. If it did then the banks would find another way to make up the lost revenue. It may be that they put up their fees for traders and so either goods all become more expensive to cover the cost or Visa/Mastercard go the way of Amex and are only accepted in certain locations due to the increased fees.

So from my perspective no change required.

Thank you.  I appreciate.
If you're a perfect D/D payer ... then maybe a thought to others in society less capable? I'm just the disruptive idealist I guess. 
I take your point on the consumer protection. Definitely.
Again, I do pay off every month for years and years in full ... suddenly a small mistake threw the conversation to my awareness. I still will continue to pay off in full (which I did this morning - why I suddenly am back on the forum to see responses). I still care about the more vulnerable and others.

But ... I take your point on the second paragraph, but that actually proves my point I think.

They are charging money for profiteering, not for running the service.

If everyone paid off their balance every month, without fail across the world, they'd still need to run the service and they'd just make less profit not less revenue, cos they still must make a profit before the risk of not getting any late payments or they'd be out of business quick.  That's a fairly hefty risk to take globally.  Way more than my £364. :P

Or yes, we'd be told that as a world we now cannot have any interest free periods on cards, or cards without a subscription plan because they don't cover the costs, and then it becomes a less profitable service for the card providers cos they can only (under consumer duty!!) charge for and explain their costs and charges.

Here's an analogy from me ... the government launched an inquest into supermarket petrol prices because they weren't adapting as fast. And the age old classic of it rises with rises and goes down much slower when oil prices come down.
Or people talking about mortgage rates rising with interest rates instantly, but not quite coming back down as fast.

If we all sign up for those T&Cs ... then why does anything ever have to change?

CliveOfIndia

Synthespian said:

They are charging money for profiteering, not for running the service.

Well of course they are.  They are a business, not a charity.  Do you expect the garage to repair your car and charge nothing more than the cost price of the parts?  Do you expect the hairdresser to cut your hair for free?  Do you expect the supermarket to sell you food at cost price and not a penny more?

Of course they're out to make a profit, that is the sole purpose of any business.  And, in general, credit cards generate a pretty healthy revenue stream for most banks.

They offer a range of products, which you can choose to either buy or not.  Just like you're free to treat yourself to a luxury cruise or not.  You're free to spend your life savings on a Rolls Royce or not.  If you want a credit card and you're OK with the T&Cs then apply for one.  If you don't want a credit card (there are plenty of people who don't), or don't like the T&Cs, then don't get one.

To put it bluntly, them's the T&Cs you have to abide by, take it or leave it, your choice.  No-one's forcing you to have a credit card.

adindas

Synthespian said:

adindas said:

The fact that no one likes to pay interest, fine, I get it. But what you have not mentioned here is that, paying by credit card, you literary get an interest free loan until the next statement month, if you pay off the balance in full stated in the statement. You have the option to pay the balance in full using DD.

In your case the balance to clear is just £364. What about if it was £13,640?

Is getting an interest free loan for about a month not Fair?

I don't think I wrote a £13k value in my post. 

Yes, I commented I normally pay off the balance each month. No-one is questioning the fairness of that scenario that helps provide liquidity and the transactions also give money to the card companies from the vendors. 

I know I made a mistake.
I have spoken to the bank.

My question is about the general terms these card providers offer.  And this is a "normal" credit card and not one of those with 105% interest that are scaringly allowed.

I worry about the more vulnerable consumers in our society who don't get this stuff as easily.  That's why we need things like Consumer Duty to make it all clearer.

I don't think it's right to charge on the full balance if you paid of part of the balance inside that initial "interest loan free period".

Again, look at my point about how the "allocation of payments" are made when interest is being applied.  They sensibly understand you have to clear the ones with the most interest first.
If you had a balance transfer, and then transactions, they'll clear the the interest bearing transactions first if you don't get the full balance.

It's a theoretical question outside of what is currently in T&Cs, rather than the many replies lambasting me for my lack of direct debit use which was never the question. I know why, I have a good reason why, I know I made a mistake.

The numbers show it is so imbalanced in how the current T&Cs operate, imho.

It's about consumer duty principles of clear communication to consumers.  Anywhere they write "up to 56 days" should include a statement of "only if the balance is cleared in full" or it can be misleading to those that don't get finances as clearly.


I also made another mistake in not having email alerts enabled, hence my return and multiple posts! :P
Live and learn. :P

I am with you. I also want a change if it could bring more benefit to me. I also like to have a CC that will not charge fees, zero interest indefinitely.
But what I do not want to do is to become a champion, to fight the things that I personally do not believe it is going to happen. So I will leave it to you to fight for it and I am more than happy to get a freeride. Please keep fighting for a change, do not give up  ....

MattMattMattUK

Synthespian said:

They are charging money for profiteering, not for running the service.

They are not profiteering, charging money for a service is not profiteering. 

Synthespian said:

If everyone paid off their balance every month, without fail across the world, they'd still need to run the service and they'd just make less profit not less revenue, cos they still must make a profit before the risk of not getting any late payments or they'd be out of business quick.  That's a fairly hefty risk to take globally.  Way more than my £364. :P

If everyone paid the balance in full every month then it would mean that all cards have effectively evolved into charge cards, they would make so little profit that they would likely be loss making, charge card operators generally charge annual fees, Amex is a prime example. Their business model is not based on no one paying interest, because many people do, they would not go out of business as per your hypothetical example because your example does not happen. 

Synthespian said:

Or yes, we'd be told that as a world we now cannot have any interest free periods on cards, or cards without a subscription plan because they don't cover the costs, and then it becomes a less profitable service for the card providers cos they can only (under consumer duty!!) charge for and explain their costs and charges.

They would not have to explain their internal costs, just as they do not now. They do explain, very clearly, the costs they charge customers, so in that respect nothing would change. 

Synthespian said:

Here's an analogy from me ... the government launched an inquest into supermarket petrol prices because they weren't adapting as fast. And the age old classic of it rises with rises and goes down much slower when oil prices come down.

The government made a pronouncement in the media to try and increase their popularity, the result of that pronouncement is that nothing will happen and nothing will change. There is nothing inherently wrong with prices rising fast and falling slow from a market perspective, in general it happens in all markets selling to consumers.

Synthespian said:

Or people talking about mortgage rates rising with interest rates instantly, but not quite coming back down as fast.

That reflects the money markets, although any tracker style mortgages will rise and fall with base rate instantly. Generally you will find that whilst a lot of people talk about things happening, they are usually wrong.

Synthespian said:

If we all sign up for those T&Cs ... then why does anything ever have to change?

It depends, but there is no need for the current system to change, it works fine, the costs are clearly laid out, anyone who does not want to pay interest pays their balance in full every month. 

born_again

TBH, it's not something that will change. 
The cost to change the computer systems alone will make sure of that. 

Switch from CC to charge cards. Yes please. No more S75 to mess with.😍
But charge cards will not suit the vast majority of CC users who do not pay in full each month.

prettyandfluffy

No it doesn't need to change and no, charging interest is not "profiteering".  And I don't work for a bank or in that sector, I'm just a customer.

molerat

Surely a credit card is better than a loan.  It charges interest on purchases from the date of purchase until that purchase is paid off, exactly the same as a loan.  if you make a payment part way through the monthly cycle it will reduce any interest charged, on the earliest transactions, the same as a loan.  You pay no more than the interest accrued on the daily outstanding balance. The big difference from a loan is that if you pay off the whole of the statement balance within the advised timescale any interest accrued is waived.  What you are wanting is to have your cake and eat it.

eskbanker

Synthespian said:

eskbanker said:

Interest is charged based on the daily balance, but I think you're forgetting that it'll be charged from transaction date to payment date, if you fail to pay the balance in full by the statement due date.

If you plug all of the daily figures into a spreadsheet, you should be able to reconcile it, but effectively you'd be paying daily interest on a balance building up to £364 between the transaction dates and the statement date, then the full £364 for each day between then and paying the £356, then on £8 each day until finally fully paid off (which will result in trailing interest on the next statement).

When paying off in full, the card companies waive the interest both between transactions and statement, and also between statement and payment (by due date), but if you fail to pay in full, they no longer make those concessions.

Nope.
I absolutely did not forget that.  My point was exactly that ... if I paid off something (not all) from the card, then it should (in a fairer way) remove the earliest transactions from the calculations and charge interest on everything else that wasn't cleared.

Yes, maybe they charged interest on the full up until the £350 payment was made, but that's not what the bank's service staff said.

If the payment is after the statement date, then of course ... interest is charged across it all.

that is exactly what the T&Cs of a number of card providers do when you have transactions that are "now" charging interest, they clear the oldest first to stop the interest on those.  They should extend that to all transactions even in that first period.

I still think you're misunderstanding - there is no such calculation tracking interest at an individual transaction level, it's just aggregated as a total balance, or to be more specific, a balance per interest rate to allow the prioritisation of repayments to direct them to the highest rate balances first.  As interest is calculated from daily balances, not individual transactions, the latter can't just be 'removed' or 'cleared' based on their execution date.

You can huff and puff all you like about your belief that the whole process should be reengineered according to your whims, but there is simply no way that the current system could be described in any way as "fraudulent" - card companies can't and won't charge interest on anything that you don't actually owe them at any particular point in time....

Synthespian

MattMattMattUK said:

Synthespian said:

They are charging money for profiteering, not for running the service.

They are not profiteering, charging money for a service is not profiteering. 

Synthespian said:

If everyone paid off their balance every month, without fail across the world, they'd still need to run the service and they'd just make less profit not less revenue, cos they still must make a profit before the risk of not getting any late payments or they'd be out of business quick.  That's a fairly hefty risk to take globally.  Way more than my £364. :P

If everyone paid the balance in full every month then it would mean that all cards have effectively evolved into charge cards, they would make so little profit that they would likely be loss making, charge card operators generally charge annual fees, Amex is a prime example. Their business model is not based on no one paying interest, because many people do, they would not go out of business as per your hypothetical example because your example does not happen. 

Synthespian said:

Or yes, we'd be told that as a world we now cannot have any interest free periods on cards, or cards without a subscription plan because they don't cover the costs, and then it becomes a less profitable service for the card providers cos they can only (under consumer duty!!) charge for and explain their costs and charges.

They would not have to explain their internal costs, just as they do not now. They do explain, very clearly, the costs they charge customers, so in that respect nothing would change. 

Right ...
1 - there's a big difference in the term profit and profiteering. Of course a business wants to make profit.  Not debating that. Didn't say they shouldn't.
Look at today's news story as another example out there: https://www.bbc.co.uk/news/business-66992865
8.1bn is a sizeable balance sheet, and with interest / coverage / collateral that's a big benefit to a company.  Now if we all (were able) to pay on time, with a direct debit the exact owed amount ... 
(and yes, they need the money to cover the service as energy is used during the quarter, blah blah blah, but just ask what % overspend by customers is morally acceptable?)
If you read the article and understand the current process most people end up paying the right amount over the year, but the companies do end up with a large cash surplus for half the year. It adds up.

2 - if everyone paid their balance (as per the T&Cs which CliveOfIndia is unable to say anything but) then yes, they'd possibly make a loss.  That means that it's profiteering off people who don't, rather than running a business that's self sufficent.
Again ... all the card providers take a minor tiny cut per transaction we all make as well as all of the other charges or interest costs.  
In a cost of living crisis with all prices, interest rates, etc rising, this sort of thing adds to the burden.

3 - Actually, Consumer Duty is driving towards much wider transparency over products that financial firms sell, so whilst they don't state every individual interal cost ... it might change in the long run.
https://www.fca.org.uk/firms/consumer-duty

born_again

Synthespian said:

MattMattMattUK said:

Synthespian said:

They are charging money for profiteering, not for running the service.

They are not profiteering, charging money for a service is not profiteering. 

Synthespian said:

If everyone paid off their balance every month, without fail across the world, they'd still need to run the service and they'd just make less profit not less revenue, cos they still must make a profit before the risk of not getting any late payments or they'd be out of business quick.  That's a fairly hefty risk to take globally.  Way more than my £364. :P

If everyone paid the balance in full every month then it would mean that all cards have effectively evolved into charge cards, they would make so little profit that they would likely be loss making, charge card operators generally charge annual fees, Amex is a prime example. Their business model is not based on no one paying interest, because many people do, they would not go out of business as per your hypothetical example because your example does not happen. 

Synthespian said:

Or yes, we'd be told that as a world we now cannot have any interest free periods on cards, or cards without a subscription plan because they don't cover the costs, and then it becomes a less profitable service for the card providers cos they can only (under consumer duty!!) charge for and explain their costs and charges.

They would not have to explain their internal costs, just as they do not now. They do explain, very clearly, the costs they charge customers, so in that respect nothing would change. 

Right ...
1 - there's a big difference in the term profit and profiteering. Of course a business wants to make profit.  Not debating that. Didn't say they shouldn't.
Look at today's news story as another example out there: https://www.bbc.co.uk/news/business-66992865
8.1bn is a sizeable balance sheet, and with interest / coverage / collateral that's a big benefit to a company.  Now if we all (were able) to pay on time, with a direct debit the exact owed amount ... 
(and yes, they need the money to cover the service as energy is used during the quarter, blah blah blah, but just ask what % overspend by customers is morally acceptable?)
If you read the article and understand the current process most people end up paying the right amount over the year, but the companies do end up with a large cash surplus for half the year. It adds up.

2 - if everyone paid their balance (as per the T&Cs which CliveOfIndia is unable to say anything but) then yes, they'd possibly make a loss.  That means that it's profiteering off people who don't, rather than running a business that's self sufficent.
Again ... all the card providers take a minor tiny cut per transaction we all make as well as all of the other charges or interest costs.  
In a cost of living crisis with all prices, interest rates, etc rising, this sort of thing adds to the burden.

3 - Actually, Consumer Duty is driving towards much wider transparency over products that financial firms sell, so whilst they don't state every individual interal cost ... it might change in the long run.
https://www.fca.org.uk/firms/consumer-duty

If you do you due diligence than you will know you can & it is actually billed in arrears. It's a often asked question in "Energy" section.
But to do this you have to remember that you have to ensure that you can afford the big bills that the colder months bring.
So to many paying a monthly DD & building up a credit over low billing period is a easy way to balance out the costs over the year & not have a massive bill in January that you can not afford, as you overspent at Christmas.

Just like taking a fixed term mortgage or energy tariff. You are hedging you bets. It can mean you come out paying less, or more..

It's interesting to see people think that banks are profiting on these products, but have no idea on the number of staff required to run & support customer needs.
We have over 60 people in our area dealing with fraud & disputes. Never mind the cards side that deals with card deliver issues, balance transfer problems etc, which is another 60 people. A total loss making area over the year. This all has to be paid for. It's a FCA requirement to have these.