Banks ‘luring us into debt with cheap credit cards’
Lenders offering 40-month interest free deals
BANKS were last night accused of luring families into going on a debt binge.
A Daily Mail investigation has found they are using a string of underhand tactics in the ruthless drive for profit.
These include offering credit cards with 40-month interest-free balance transfer deals and relaxing customer affordability checks. Just a few years on from the financial crisis, the UK’s loan and credit card bill is growing at its fastest pace in a decade – up by 9.7 per cent over the last 12 months.
Britons now owe £182billion on top of their mortgages – or £7,296 for every household in the country.
Regulators are worried the new interestfree card deals – which have been banned by Royal Bank of Scotland – are fuelling an unsustainable credit boom and trapping millions in a spiral of unpayable debt.
Other ploys used by the banks to get borrowers to spend extra include:
Hiking customers’ credit limits – allowing them to spend more on their cards – without their knowledge;
Charging up to 59.9 per cent interest rates on some cards dubbed ‘payday loans with plastic’;
Selling credit cards on the street – literally stopping shoppers to persuade them to sign up for deals. Last night, one charity raised concerns that the lessons of the last financial crisis have not been learned as families max out their cards. The number of people who approached StepChange with debt problems has soared by 48 per cent since 2012 to 549,053 last year.
Amid fierce high street competition, banks are battling to win customers who want to borrow money. One trick is to entice new credit card customers by offering ever-longer interest free periods when they transfer a balance from another card. Customers are being bombarded with offers for so-called ‘teaser rate’ credit cards which allow people to effectively put existing debts on hold while accruing new ones. But while the tactic is not new, the interest-free period on offer was usually around a year.
However, there are now 12 cards on offer with interest-free periods of three years or more, according to financial data company Moneyfacts. Firms which offer them include Virgin Money, MBNA, Halifax, Tesco Bank, Lloyds Bank, Bank of Scotland, Barclaycard, the Post Office, and Sainsbury’s Bank. The record 40-month zero per cent balance transfer deals are from MBNA and Virgin Money.
New purchases with the cards will incur interest payments and the rate for the entire balance soars to almost 19 per cent when the introductory deal ends. Latest Bank of England figures reveal families are falling £61million further into debt every day. Households took on an extra £1.9billion of debt last month as they splashed out on cars, clothes and holidays.
Sales of new vehicles rose to the highest level in 13 years last month – with many households taking advantage of cheap car finance deals. There were 189,505 new car registrations in the UK last month, according to the Society of Motor Manufacturers and Traders yesterday.
The rapid growth in borrowing has alarmed MPs.
Mark Garnier, Conservative member of the Treasury Committee, said: ‘This is a real problem. The financial crisis was characterised by irresponsible borrowing and irresponsible lending. We have to avoid that happening again.’
Some firms are going to desperate lengths to win business. A Money Mail investigation revealed how challenger bank Vanquis hired students and jobseekers to sell credit cards carrying 40 per cent interest rates in town centres.
These high-interest credit cards, which can have rates of up to 60 per cent and often have low credit limits, have been dubbed ‘payday loans with plastic’ by regulators.
Royal Bank of Scotland’s boss Ross McEwan has banned zero per cent cards, arguing ‘we will not be in the business of trapping people in debts they cannot afford’.
A spokesman for the BBA, which represents banks, said: ‘Banks have robust procedures in place designed to ensure consumers get the right product for them and only take on debt that they can afford to repay.’