The dangers of relying on credit cards

By Stuart Cliffe
Chief executive, National Association of Banking & Insurance Customers

To coincide with Hey Big Spender! - a series of BBC programmes highlighting debt issues - a consumer expert explains the tactics used by banks and credit card firms to tempt people into borrowing money.

The plastic in your pocket may be flexible, but it may not be your friend.

As the country recovers from yet another Christmas spree, tens of thousands of credit card customers are facing the grim reality of steadily increasing debt.

Card issuers do compete aggressively to attract customers, the number of different cards and personal loans on offer has exploded in recent years.

However, many believe this marketplace is not based on genuine benefits, low prices or good service.

The Treasury Select Committee had to ask a maths professor for help as it struggled to understand the tariffs and charges published by High Street card providers

Don Cruickshank highlighted excess cost - and lack of competition - in his March 2000 report into UK banking.

While other commissions and committees have echoed these findings since, our increasing reliance on plastic involves other dangers than simply the interest rates charged.

The credit card industry is wedded and chained to its small print, impenetrable conditions and complicated interest calculations.

Recently, the Treasury Select Committee had to ask a maths professor for help as it struggled to understand the tariffs and charges published by High Street card providers.

Zero sum game

Last year, Barclaycard came under fire for its credit card promotions - a 'zero interest rate' card - provided only if at least £50 per month was charged to the card.

Failure to spend £50 a month led to a less attractive rate of interest being applied.

There is a sting in the tail when using a credit card cheque

Other card providers have used variations on the zero interest theme for transferred balances, with payments credited to the transferred balance rather than any subsequent purchase.

The hidden danger is that until the whole transfer is paid off, purchases continue to accumulate another debt attracting substantial interest charges.

New regulations will come into force later this year requiring an 'honesty box' on correspondence and advertising to make it easier to compare account charges and costs.

Credit cheques

Many people would have received cheques through the post issued by their credit card provider.

Credit card cheques are comfortably familiar and could be mistaken for a replacement of a traditional bank cheque.

However, there is a sting in the tail when using a credit card cheque.

The cheques incur interest from the day the money is paid and often additional charges on the account are levied.

What is more, use a credit card abroad and charges are applied for transactions on foreign cash machines and for converting overseas purchases into UK pounds.

Pre-approval

Many consumers have been rejected for credit in the past - possibly when they were younger and had no history of loan repayment.

Therefore, to receive, in our credit fuelled times, a pre-approved loan or credit card can be taken by some as a sign of having arrived.

Click here for information on how to take part in the BBC's interactive debt discussion

More customers every day are being tempted into situations that will incur debt, and build bad spending habits, then given higher credit limits to reward excess.

They are then offered more benefits to control that debt through balance transfers and concessionary interest rates that will only complicate and probably increase their problems.

Overall, it is no surprise that 2004 promises to be a record year for bank profits and many people are drowning in a sea of debt.

Take control

The simplest advice for anyone in debt trouble is to stop spending.

Bin the credit card cheques, tempting offers and notification of a pre-approved loan.

Spend only what you have, draw up a budget and get on top of debt.

The views expressed are solely those of Mr Cliffe and are for general information only.

Professor Elaine Kempson appointed to carry out 2004 Banking Code Review

Professor Elaine Kempson of Bristol University has been appointed by the three joint sponsors of the Banking Code to carry out the 2004 independent review of the Banking Code and Business Banking Code.

Announcing the appointment today, Ian Mullen, chief executive of the British Bankers' Association (BBA) said: "The banking industry is committed to building on the improvements to the Codes made in the last review. Our objective is to promote the high standards of customer care and protection that the Codes provide. Professor Kempson is highly respected within the money advice sector, consumer groups and the financial services industry. We are delighted that she has been appointed to carry out the 2004 independent review."

Adrian Coles, director general of the Building Societies Association (BSA) said: "The Banking Code is essential for consumers, it tells them what to expect in terms of standards and service from their banks and building societies. As new issues arise, the review gives us the opportunity to revisit the Codes to ensure there is adequate consumer protection."

Professor Kempson said: "I am delighted to be appointed as independent reviewer for the Banking Code and Business Banking Code for a second term. A lot has happened since the Codes were last reviewed and I am looking forward to receiving views from a wide range of sources including consumer groups, Government, regulators and of course, the banks and building societies themselves."

The industry has already committed to address points raised by the Treasury Select Committee - a "summary box" will be included on credit card literature by March 2004 - and this will be incorporated into the Banking Code. Other points expected to be addressed in the review are greater clarity on the use of credit card cheques and issues raised in the Government's recent White Paper on consumer credit. One of the more challenging areas expected to be covered is the help given to the small minority of people who get into serious difficulties with a number of creditors, where a bank or building society may be just one of many.

Elaine Kempson's appointment was welcomed by Seymour Fortescue, chief executive of the Banking Code Standards Board, the independent body that monitors and enforces the Codes: "Elaine is a respected, independent figure who will hear the voices of consumers as well as understand how changes will affect the industry."

The review of both Codes will commence in January 2004 and the results will be published alongside the Industry's response in September 2004. The revised Codes will take effect from 1 March 2005.