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Costly Credit Card Mistakes Add £948 Million In Annual Interest Charges To Bills

11 January 2017

  • A fifth of Brits (20 per cent) with a zero per cent balance transfer card have lost their promotional rate and paid more in interest as a result
  • Co-operative Bank balance transfer credit card does not withdraw zero per cent rate for small mistakes

A fifth (20 per cent) of the 14.4 million* Brits who have taken advantage of a zero per cent balance transfer credit card offer in the last five years have fallen foul of the terms and conditions of the deal, and had the promotional zero per cent rate withdrawn early as a result, according to research by The Co-operative Bank.

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 £948 million** annually in interest as a result of their card reverting to its standard APR.

The study also shows these small mistakes are relatively common. 37 per cent of credit cardholders with a balance transfer promotional offer admitted making this type of mistake. On average, consumers who lost the zero per cent offer did so just five months into the deal, however, seven per cent didn’t even receive the benefit of a promotional offer at all due to making a mistake immediately, resulting in the promotional rate being withdrawn.

Customers of The Co-operative Bank wanted a card that was fair and didn’t disproportionately 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 overlimit fees continue to apply, but they will not face the loss of the promotional offer resulting in double-digit interest being applied.

Matthew Carter, Marketing and Communications Director at The Co-operative Bank, said: “Now is a prime time to review 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 can prove costly. It is all the more galling when you have paid a fee to transfer a balance to a card, only to see the benefit you paid for being removed.

“As stated in our Ethical Policy – to design products and services that reflect our values and ethics in the way we treat our customers – our credit card is simple, transparent and fair, giving customers more control over their finances. Of course, cardholders should be aware of their terms and conditions 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, cardholders face paying the standard interest rate on their outstanding debt. As a result of this, the study revealed 20 per cent of people who have lost a promotional offer took out a loan to meet their repayments, 37 per cent dipped into their savings to cover the rising cost and 26 per cent turned to their overdraft. A further 21 per cent claimed they had to repay the full amount of the balance straight away and 27 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, almost a third 30 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 31 per cent were unaware it could be removed if they exceeded their credit limit.

Details of the balance transfer credit card from The Co-operative Bank:

  • 0% interest on balance transfers for 24 months made within 60 days of account opening reverting to 18.0% interest per annum after 24 months
  • Balance transfer fee is 1% of balance transfer value, with a minimum charge of £5
  • 0% interest on purchases for up to 4 months from account opening, reverting to 18.0% interest per annum after 4 months
  • The promotional 0% rate will not be removed for small mistakes (uncapped) including missing payments, late payments and exceeding credit limit as written into the terms and conditions of the card, but we may charge you a fee
  • £10 late payment fee

Representative Example
You can get an interest rate on card purchases of 18.0% per annum variable after 4 months with a rate of 18.0%APR representative / variable providing you have a credit limit of £1200.

-- ENDS --

Notes to editors

The study was carried out for The Co-operative Bank by Opinium amongst 2,001 UK consumers between the 25th and 29th of November 2016. Of these, 560 consumers own/have owned a promotional balance transfer credit card in the last five years.

*Equates to 28% of the UK population of 51,339,000

**Calculated using 31.8 million cardholders in the UK [Source:http://www.theukcardsassociation.org.uk/wm_documents/UK%20Card%20Payments%202015%20taster%20for%20website.pdf]. 39% of cardholders have had a balance transfer promotional offer included and of those, a further 37% have made a mistake and had their promotional offer removed. The average standard interest rate for a credit card is 17.93%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#BMand the average amount of debt transferred on to the most recent balance transfer card is £2,115. Therefore based on these average figures, the total interest paid in a year would be £379.24 – multiplied by those who have made a mistake and lost their offer = £947,500,261 per year. This is based on a full year of interest payment with the original debt remaining unpaid for a full year.  

About The Co-operative Bank

The Co-operative Bank plc provides a full range of banking products and services to around 4.4 million retail and SME (Small and Medium Sized Enterprises) customers.  The Bank is committed to values and ethics in line with the principles of the co-operative movement.

The Co-operative Bank is the only high street bank with a customer-led ethical policy which gives customers a say in how their money is used.  Launched in 1992, the Policy has been updated on five occasions, with new commitments added in January 2015 to cover how the Bank operates its business, products and services, workplace and culture, relationships with suppliers and other stakeholders and campaigning.

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