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Credit card mistakes cost UK cardholders £1.2 bn in extra annual interest charges

07 January 2016

  • One in four Brits with a zero per cent balance transfer card have lost their promotional rate and paid more in interest as a result
  • The Co-operative Bank's Balance Transfer Credit Card does not withdraw zero per cent rate for small mistakes

A new study from The Co-operative Bank finds; a quarter (25 per cent) of the 15.6 million* Brits who have taken advantage of a zero per cent balance transfer credit card in the last five years have fallen foul of the terms of the offer, and had the promotional zero per cent rate withdrawn early as a result.

Typically, balance transfer credit card terms and conditions include the right to remove the zero per cent promotional offer if a customer makes a late payment, misses a payment or goes over their credit limit. This practice has collectively cost UK card holders up to £1.2 billion** annually in interest as a result of their card reverting to its standard APR.

The study also shows these small mistakes are relatively common, almost a third (29 per cent) of credit cardholders with a balance transfer promotional offer admitted making them. On average consumers who make a mistake lose the zero per cent offer just four months into the deal, however, more than a fifth (22 per cent) of these card-holders didn't even experience one month of zero per cent interest as the promotion was withdrawn.

Customers of The Co-operative Bank wanted a card that was fair and didn't disproportionally penalise them if they made a small mistake. In line with the Bank's ethical policy, customer feedback was used to create a balance transfer credit card different to most others on the market. The card offers customers a zero per cent interest rate for 24 months and will not penalise users if minor errors occur. However, customers are encouraged to adhere to their terms and conditions as standard late payment and over limit fees continue to apply, but they will not face the loss of the promotional offer resulting in double-digit interest being applied.

Matthew Carter, Products and Marketing Director at the Co-operative Bank, said: "With many cardholders only keeping the promotional offer for a matter of months, despite paying an initial fee for the benefit, our card should enable customers to utilise their zero per cent rate for as long as possible and not lose out because of minor errors. We all make mistakes, but our customers told us that while they expect to be charged a small fee, what they don't like is disproportionate penalties that unfairly hit them financially, so we designed this card to be different from many others on the market.

"Now is a prime time to evaluate household finances as we start the New Year. A balance transfer credit card is an effective way to manage debt and cut the cost of borrowing by consolidating outstanding credit balances into one repayment, yet our study shows that many cardholders never really benefit from these headline promotions as small mistakes prove costly.

"As stated out in our Ethical Policy - to design products and services that reflect our values and ethics in the way we treat our customers - this credit card is simple, transparent and fair, giving customers more control over their finances. Of course, cardholders should be aware of their Ts&Cs and take action to minimise the likelihood of missing, or making, a late payment by setting up a direct debit for at least the minimum amount."

In general, once a promotional zero per cent balance transfer is withdrawn, card-holders face paying the standard interest rate on their outstanding debt. As a result of this, the study revealed two-fifths (41 per cent) of people who have lost a promotional offer took out a loan to meet their repayments, 38 per cent dipped into their savings to cover the rising cost and 38 per cent turned to their overdraft. A further 23 per cent claimed they had to repay the full amount of the balance straight away and 25 per cent said the card's credit limit reduced to the amount they had transferred to it.

When it comes to consumers' awareness of the terms and conditions attached to the promotional rates on balance transfer cards, more than a third (37 per cent) of cardholders who have, or have had, a balance transfer card were not aware that the card provider could remove the promotional rate if they missed a payment, while a third (34 per cent) were unaware it could be removed if they exceeded their credit limit.

Details of the  from The Co-operative Bank:

  • 0 per cent APR (typical) on balance transfers for 24 months;
  • A balance transfer fee of 1 per cent;
  • 0 per cent APR on purchases for four months;
  • Standard rate of 18.0 per cent APR applies following the promotional period;
  • £12 late payment fees apply.

-- ENDS --

For further information contact The Co-operative Bank Press Office.

About The Co-operative Bank

The Co-operative Bank plc provides a full range of banking products and services to almost 5 million retail and SME (Small and Medium Sized Enterprise) customers. The Bank is committed to values and ethics in line with the principles of the co-operative movement.

Notes to editors

The study was carried out for The Co-operative Bank by Opinium amongst 2,003 UK consumers between the 27th and 30th of October 2015. Of these, 1,528 consumers own/have owned a promotional balance transfer credit card in the last five years.

* Equates to 31% of the UK population (50,909,000 ONS 2014).

** Calculated using 31.3 million cardholders in the UK (source:http://www.theukcardsassociation.org.uk/wm_documents/UK%20Card%20Payments%202015%20taster%20for%20website.pdf). 40% of cardholders have had a balance transfer promotional offer included and of those, a further 25% have made a mistake and had their promotional offer removed. The average standard interest rate for a credit card is 17.95% (source: http://www.bankofengland.co.uk/boeapps/iadb/index.asp?Travel=NIxIRx&levels=1&XNotes=Y&C=PB&G0Xtop.x=51&G0Xtop.y=17&XNotes2=Y&Nodes=X40727X40728X40754X40755X45786X45877&SectionRequired=I&HideNums=-1&ExtraInfo=true#BM), and the average amount of debt transferred on to the most recent balance transfer card is £2,105. Therefore based on these average figures, the total interest paid in a year would be £379 - multiplied by those who have made a mistake and lost their offer = £1,199,858,840 per year. This is based on a full year of interest payment with the original debt remaining unpaid for a full year.

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