The Competition Commission one of the governments watchdogs, has at last moved to shame credit cards in to cutting their charges. The long overdue move comes after the Commission concluded that the credit card industry was overcharging customers between ?55 and ?100 million each year through excessive interest rates and other charges. And this has been going on for a least 3 years!
The main culprits by far are store cards where interest rates are as high as 30.9% - even though the Bank of England's base rate stands at just 4.5%. The worst culprits were TJ Hughes and the Faith Card followed by Owen & Owen. You can find them heading the Table of Shame shown below in this article.
The commission has also come down on high penalty charges for missed or late payments and Payment Protection Insurance. Average penalty charges are currently ?15 per event ? but the Commission is also right to argue that these charges are excessive.
As for Payment Protection Insurance, the Commission has joined the consumer body ?Which?, the National Consumer Council and indeed the Financial Services Authority in concluding that whilst this insurance can be a good idea, credit card operators have abused it. The Commission has therefore decreed that Payment Protection Insurance must no longer be sold in a combined package with a credit card; it must always be purchased as a separate stand alone transaction. That'll be good news for the Internet where many of the cheapest Payment Protection Insurance deals can be found. With premium savings of up to 60% in comparison with credit card and loan packed arrangements, business on the Internet will flourish.
So what do the new rules from the Competition Commission say? The five main changes are:
? If a credit card charges more than 25% interest, it must carry a prominent warning that there are cheaper ways to borrow. This warnings must be displayed on every monthly statement.
? The interest rate and penalty charges must me clearly displayed on the front page of each monthly statement.
? The monthly statement must warn of the consequences in terms of higher interest charges, of just paying the minimum monthly repayment.
? Credit Cards must offer every customer the option of automatically clearing their monthly balance each month by direct debit. These direct debits would avoid any possibility of interest charges and late payment penalties.
? Credit Card operators must not sell Payment Protection Insurance in a combined package with credit cards. The insurance must be sold as a separate and optional transaction that enable purchasers to see the true cost.
These new rules seem destined to shame retailers into slashing their charges ? that's not to say that 25% pa interest is a snip! Main line credit cards issued by banks are currently charging around 14% to 18% and we think that's too high!
Indeed, between 80% and 90% of store cards held by some 11.5 million customers charge more than 25%. But some retailers have jumped the gun realising that their sky-high charges couldn't last forever. Three store cards have already taken steps to trim back. Harvey Nichols has cut their interest from 28.5% to 21.9%, River Island has trimmed down from 29.9% to17.9% and Monsoon from 29.9% to 18.9%.
But who are the bad boys? Here is our Table of Shame:
TJ Hughes 30.9% Faith Card 30.9% Owen & Owen 30.7% Burtons 29.9% Dorothy Perkins 29.9% East 29.9% Evans 29.9% HMV 29.9% JD Sports 29.9% Kwik Fit 29.9% La Senza 29.9% Laura Ashley 29.9% Miss Selfridge 29.9% Russell & Bromley 29.9% Ted baker 29.9% Topshop/Topmam 29.9% Wallis 29.9% Warehouse 29.9% House of Frazer 29.3% Bhs Gold Card 29.0% Habitat 29.0% Oasis 29.0% Harrods 28.9% Fenwicks 27.9% Selfridges 27.6% Bentalls 27.2% Jaeger 27.1% B&Q 26.8% French Connection 26.8% Argos 25.9% Homebase 25.9% New Look 25.9%
Note: Some of these cards do offer lower interest rates for payment by Direct Debits. Source: Competition Commission/Moneyfacts March 2006
These credit cards are operated by a number of large finance companies, the largest being GE Capital the American giant. The profits are shared between the card operator and the retailer who is often incentivised by being awarded a higher share of the profit if they hit certain key debt thresholds. This has encouraged stores to put immense pressure on shoppers to take cards out.
The Chairman of the House of Commons Treasury Committee, John McFall has accused retailers of putting profit before customers saying ?If you buy a suit from one of the stores then you would expect the retailer to ensure that it was well made and reasonably priced. These principles do not seem to apply to their store cards?.
Lets all hope that the action taken by the Competition Committee does the trick!
One of the huge advantages of credit cards, and one of the many reasons they continue to grow in popularity, is the easy access they offer when travelling abroad. Not only can they be used with ease to book hotels or pay for car rentals, but they can also be used at cash machines around the world for instant and safe access to local currencies. They are also far safer than carrying cash, which can be stolen no matter where in the world you are travelling, and more convenient than travellers cheques which can often be difficult or time consuming to cash.
However, with this added convenience comes extra costs. When you use your credit card to make purchases in foreign countries you will be charged currency conversion fees and sometimes also, a loading fee by your credit card provider. This means that there can be two sets of charges added to every purchase you make while abroad. It can be frustrating to get home and find that along with each transaction there is a conversion fee of a couple of pounds and another loading fee also of a few pounds. While it is possible to get cards that have lower fees for foreign currency transactions, it is difficult to avoid these charges completely. Most people put up with them because of the sheer convenience of using the card but there are ways to avoid them.
One way is to take out cash from a cash machine with your credit card. The main disadvantage of this is that you will be charged interest on cash advances immediately, and are not allowed the usual interest free period which lasts until your next bill. However, if your alternative is to make lots of small purchases, with each one incurring its own separate charges, you may be better off taking this once off fee, then lots of smaller ones.
If you are organised enough, you can pay extra money onto your credit card before you leave, so that you will in effect have paid off the cash advance before you take it out, and thus avoid paying interest on it. Another option, if you have money in your bank account and an internationally recognised debit card, such as maestro, is to take out cash on your debit card. While this will incur some foreign charges, at least you will not have to pay any interest on the cash.
At the end of the day, for many people, being able to rely on using their credit cards abroad is a god send and the fees are a reasonable price for the convenience and security afforded.
Both Michael Challiner & Joe Kenny are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Michael Challiner has sinced written about articles on various topics from Finances, Advertising Guide and Quit Smoking. Michael writes for Brokers Online who offer and most UK financial services including. Michael Challiner's top article generates over 165000 views. to your Favourites.
Joe Kenny has sinced written about articles on various topics from Mortgage, Credit Cards and Life Insurance. Joe Kenny writes for the Credit Card Guide, offering the latest , visit today for introductory. Joe Kenny's top article generates over 49500 views. to your Favourites.