Increasing the APR

The hundreds of complaints What Consumer receives each year about a well known credit provider all relate to the same thing. The hiking of interest rates to astronomical levels at the end of a low or 0% APR introductory period. Card providers are quite within their rights to make these increases, but will often do so in response to accounts which have not been significantly reduced, or where the card holder has incurred late payment penalties (even if on only one occasion). This may seem very unfair, especially when we are talking about APRs of around 34%. But what makes it worse is these hikes can put immediately put people over their credit limit (which will incur further charges) and usually only with less than a month’s notice.

Allocation of repayments – credit cards

Your credit balance will consist of fees, interest and debt. The credit provider will separate these out in layers according to how soon they will be paid off. At the top of the pile you’ve got your fees – these will be paid off first. Underneath you’ve got your interest, and under this your debt – this is usually last to be paid off. Now, here’s the really sneaky thing. Cash advances will be shoved right to the bottom of the debt pile, to be paid off last. And we all know (or should know) that cash advances have higher rates of interest attached. So let’s say you have a balance transfer debt of £2000, a spending debt of £1000 and a cash advance debt of £50. That £50 will not be paid off until the other £3000 is first cleared, and for all of that time you will continue to pay the higher rate of interest on that sum. Not all credit cards will do this, but it’s worth looking at the ‘allocation of payments’ section in the Ts and Cs to see whether this is the case.

Moving the goalposts

Credit providers have the right to make changes to your account at any time. Provided you are not on a low or zero interest introductory fixed rate, they can increase your interest rate, reduce your credit limit, demand immediate repayment and withdraw any associated benefits of services. Moreover, they can do this with less than one month’s notice. As mentioned above, their action may result in you suddenly finding yourself over your credit limit and liable for a penalty. But as we have also pointed out, you should be able to get this reduced or waived if you feel the card provider is unfairly profiteering.

So why do they do this? It’s often due to their concerns over your credit-worthiness – you may not have been paying very much off the debt, or you may have been late paying. So to avoid the credit provider pulling the rug out from under your feet like this, ensure you are paying back more than the minimum amount each month and doing so on time.

Your rights

You have certain rights under the Consumer Credit Act in relation to cooling off, equal liability and protection against fraudulent activity. See our section on the Consumer Credit Act for more on this. Visa debit cardholders also have consumer protection rights. Refer to our section on Visa debit Chargeback for more on this.

Payment Protection Insurance (PPI)

Payment Protection Insurance, or PPI, is a policy which covers your monthly repayments in the event that you are unable to work due to accident, ill health or unemployment. It is usually offered by the card provider on the application form, but you would be advised to shop around for a more competitive deal from the dozens of available stand-alone policies on the market. See our section on PPI for more on this.

Using your card abroad

Using your debit or credit card to pay for foreign goods and services will be subject to an exchange rate fee of around 2.75% of the debt, plus transaction fees of between £2 and £5. So it is not advisable to pay for small amounts on credit or debit card where you could be paying the same amount again in bank charges! In the case of credit cards, the bank charges you pay are offset by the protection you get for sums of money over £100 under S.75 of the Consumer Credit Act. Therefore use it only for large purchases of goods where you can take advantage of this protection should anything go wrong – such as electrical items which could break down.

Taking a moderate amount of currency and then withdrawing sums with a debit card from local ATMs is a popular and low risk choice for most people, as the exchange rate fees are slightly less for ATMs than for card purchases in shops. However try to make fewer larger withdrawals rather than smaller frequent ones, as you would do in the UK. In addition to the exchange rate fee, banks will charge a transaction fee for every withdrawal, but there is usually an upper limit on the amount that can be charged, so for larger amounts it may be proportionately less. Best to check the Ts and Cs of the bank / card provider before you go to be sure.

As we keep hammering on about, Using your credit card to withdraw cash should be avoided where possible. Not only will you be subject to exchange rate and cash advance fees, but you will be charged interest at elevated rates from the moment the cash is withdrawn.

Holding your card details

Many people are alarmed that their credit or debit card details can be retained for seemingly indefinite periods by a website or trader. There is no law requiring them to destroy card details (although the 3 digit security number shouldn’t be retained) only the requirement to comply with the Data Protection Act which states that personal information must be fairly and lawfully processed, secure and not kept for longer than necessary. Some transactions are termed Recurring Transactions (formally known as a continuous authority transaction). This entitles the trader to keep card details so they can take regular payments or debit the account as they see fit without the permission of the card holder, although obviously the card holder must be notified. Examples would be car hire, hotels or subscription based accounts. You have the right to see what details a company has on file about you at any time by doing a Subject Access Request. Refer to our section on the Data Protection Act for more on this.

What about card security? The law is very clear on this. You are automatically protected by your credit and debit card provider against fraudulent transactions which you have not authorised. Unfortunately this protection does not extend to transactions which you have authorised, where, say, the goods have not been delivered or are of poor quality. However, you can claim your money back under S75 CCA (equal liability of the credit card provider) or via the Visa Debit chargeback scheme provided certain conditions are met.

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