Nationwide increasing credit card interest rate by 50%

MattMattMattUK

david72 said:

MorningcoffeeIV said:

I don't think 'exploitative' means what you think it means... 

I think it's pretty fair to say that credit card rates over 20%, and overdraft rates of 40% are pretty exploitative. These are almost banana-republic rates, and the UK hasn't quite reached that stage…

These rates are now completely out of kilter with what it costs lenders to lend money, and, if anything, are just making things even harder for people who might need to spread costs for a few months. It's just greedy profiteering.

They are not exploitative, neither are they out of kilter with the lenders costs. Credit cards have a far higher default rate than most other forms of lending, they also have to carry the cost of Section 75. Whilst the gross margin is higher, the net margin is roughly in line with most other forms of lending. It is not exploitative, it is not greedy, it is not profiteering, it is business, and whilst it might generate what seems like large profits because of the scale of the businesses, the margin and profit per customer is low. 

blue.peter

BoGoF said:

If you don't want to accept the increased rate than you can reject with no further card usage. For those paying interest on a credit card balance I would suggest that is the way to go as it has always been the most expensive way to borrow money.

"The most expensive..." is a bit of an exaggeration. An expensive way to borrow would be more accurate.

Whilst credit card borrowing certainly more expensive than, say, an unsecured loan (Santander quotes 6.2% APR), it's a lot less expensive than an overdraft (typically 40% p.a.), never mind a payday loan (Cashfloat quotes an APR of 611.74%). So someone for whom the alternative would be an overdraft might still be better off using a credit card, even at the increased interest rate.

That's not to say that I advocate carrying a balance on a credit card. I don't. I'm just pointing out that stopping credit card use might not be the best option for some people.

SuperAllyB

david72 said:
The percentage-points increase therefore may indeed be similar, but I think I'm not being unreasonable in expressing some shock at the actual magnitude of the increase in comparison. You would (perhaps naively) expect banks to vary their rates by a similar order of magnitude, assuming that their reasons for doing so are fairly similar.

Following that logic you could argue that if the rates the companies are borrowing at has doubled from 5% to 10% (example for easy counting I have no idea) then it would be reasonable for them to double their lending rates as well?

Surely it is more reasonable for them to increase everyone's rates by near enough the same as their borrowing rates have gone up.

Superhoopza

SuperAllyB said:

david72 said:
The percentage-points increase therefore may indeed be similar, but I think I'm not being unreasonable in expressing some shock at the actual magnitude of the increase in comparison. You would (perhaps naively) expect banks to vary their rates by a similar order of magnitude, assuming that their reasons for doing so are fairly similar.

Following that logic you could argue that if the rates the companies are borrowing at has doubled from 5% to 10% (example for easy counting I have no idea) then it would be reasonable for them to double their lending rates as well?

Surely it is more reasonable for them to increase everyone's rates by near enough the same as their borrowing rates have gone up.

I don't disagree but unfortunately the lenders don't provide a blanket increase to all customers, they pick and choose who and by how much the increases are, arguably targeting those carrying a higher balance.

Hoenir

david72 said:

MorningcoffeeIV said:

I don't think 'exploitative' means what you think it means... 

I think it's pretty fair to say that credit card rates over 20%, and overdraft rates of 40% are pretty exploitative. These are almost banana-republic rates, and the UK hasn't quite reached that stage…

These rates are now completely out of kilter with what it costs lenders to lend money, and, if anything, are just making things even harder for people who might need to spread costs for a few months. It's just greedy profiteering.

What does it cost lenders to lend money ? 

MattMattMattUK

Hoenir said:

david72 said:

MorningcoffeeIV said:

I don't think 'exploitative' means what you think it means... 

I think it's pretty fair to say that credit card rates over 20%, and overdraft rates of 40% are pretty exploitative. These are almost banana-republic rates, and the UK hasn't quite reached that stage…

These rates are now completely out of kilter with what it costs lenders to lend money, and, if anything, are just making things even harder for people who might need to spread costs for a few months. It's just greedy profiteering.

What does it cost lenders to lend money ? 

You will never get that information as it is hugely commercially sensitive and it varies, but from what I have heard previously the profit margin on credit cards is no higher than any other day to day lending (mortgages, loans, car finance etc.) due to higher default rates, the cost of S75 etc. 

[Deleted User]

david72 said:

Ouch, I have just received a letter from Nationwide saying that they are increasing my credit card interest rate by a whopping 50%. I have a members-only card that I have had for a good number of years, and until now it was charging a fair and not unreasonable interest rate of 9.9%, which was perfectly reasonable for the occasional borrowing over a couple of months or for much larger purchases over a longer period. The interest rate is being increased to 14.9%, which is a really hefty and shocking increase.

I suppose the only small comfort I can take is that this increase, very disappointing as it is, will take it to the same range that many credit cards from non-mutuals were charging when I last looked a few years ago; but, having a quick look around now, it seems that many of them have since snuck up their rates to over 20%! (But even that jump is "only" a ~25% increase in absolute terms, making Nationwide's larger increase quite disgraceful, and not at all what you would expect from a mutual.)

And it looks like Nationwide's currently available credit card charges an extortionate 24.9%, and that is the member-only rate! (When I took out my card, there was also a slightly higher rate card for non-members. That really is exploitative. I guess this seems to be another way that "membership doesn't have as many privileges" any more. (I suppose the cackling crow rebranding has to be paid for somehow…)

Standard operating model from Nationwide - bring out an inferior new product and leave the oldies on a superior legacy product.

• Standard APR for their Select product went from 9.9% to 12.9% and then 15.9% depending when you applied. They also left oldies on cashback for ages and whilst removing it for new applicants.  They subsequently closed Select to new applications and replaced with the virtually identical Members Card with a standard 19.9% APR and recently 24.9%.

• They let their older savings accounts (with cards) use all LINK ATMs and new savings accounts (with the same savings rate) can only use the handful of Nationwide ATMs

• They gave oldies on their FlexAccount free European travel insurance whilst newbies on the same account didn't get it. 

[Deleted User]

david72 said:

MorningcoffeeIV said:

I don't think 'exploitative' means what you think it means... 

I think it's pretty fair to say that credit card rates over 20%, and overdraft rates of 40% are pretty exploitative. These are almost banana-republic rates, and the UK hasn't quite reached that stage…

These rates are now completely out of kilter with what it costs lenders to lend money, and, if anything, are just making things even harder for people who might need to spread costs for a few months. It's just greedy profiteering.

The UK banking system is oligopolistic - only challengers Starling, Monzo and Virgin Money offer standard overdraft rates of 15-20% APR. Everyone else including Nationwide is close to 40%.

Hoenir

MattMattMattUK said:

Hoenir said:

david72 said:

MorningcoffeeIV said:

I don't think 'exploitative' means what you think it means... 

I think it's pretty fair to say that credit card rates over 20%, and overdraft rates of 40% are pretty exploitative. These are almost banana-republic rates, and the UK hasn't quite reached that stage…

These rates are now completely out of kilter with what it costs lenders to lend money, and, if anything, are just making things even harder for people who might need to spread costs for a few months. It's just greedy profiteering.

What does it cost lenders to lend money ? 

You will never get that information as it is hugely commercially sensitive and it varies, but from what I have heard previously the profit margin on credit cards is no higher than any other day to day lending (mortgages, loans, car finance etc.) due to higher default rates, the cost of S75 etc. 

I'm interested in why @david72 believes it to be exploitative. Where the cheap money to lend out originates from. 

retiredbanker1

I have had the same letter.
Whilst 14.9% is indeed 50% more than it was - 15% is still half the cost of most of the other cards I hold should I ever need to pay interest!