November 21st, 2009
(DailyMail) – The move by Capital One means some customers will be paying almost 40 per cent interest on their Christmas gifts and January sale purchases unless they clear the balance on their cards.
The American-owned finance giant said the rises were to reflect the higher risk of certain customers and ‘market conditions’.
But there are concerns that Capital One, which has 4million British customers, will be followed by other banks.
The decision has angered customers, who described the increases as ‘legalised extortion’.
It also makes a mockery of claims by Gordon Brown, Lord Mandelson and other ministers that they would ensure credit card firms treat customers fairly.
For someone with a balance of £1,000, making the minimum repayment of £5 a month, the total interest bill will triple from £3,032 to £9,547.
Someone paying off £100 a month will see interest rise from £126 to £154.
It is the second time this year that Capital One has ‘rate-jacked’ customers it considers high risk.
The average interest rate across the industry is 18.1 per cent and looks likely to rise further, even though the Bank of England base rate is expected to be held at a historic low of 0.5 per cent until well into next year.
Angry Capital One customers have been complaining in a forum on the consumer website moneysavingexpert.com.
One said: ‘My World Mastercard’s old rate is 15.9 per cent and its new rate is 23.9 per cent. I told Capital One it’s no better than legalised extortion. I’ve never missed a payment or paid late – what a way to treat customers.’
Another said: ‘My Capital One Classic Visa’s old rate was 30.04 per cent, new rate 39.9 per cent. I’ll be closing my card.’
Capital One said: ‘Due to current market conditions, we have had to increase rates for some customers.
‘As a full spectrum lender, the interest rate increases we have made are based on our customers’ risk profiles.
‘The economic environment has changed dramatically and we must adjust rates to account appropriately for the increased risk of lending in an economic downturn.’
The company insists its rate changes are in line with a code of practice agreed with the Government at the beginning of this year.
However, they are at odds with promises from ministers to ensure card customers are treated fairly.
In October, Gordon Brown promised a ‘new responsible approach to lending’.
He said: ‘We are announcing measures to make the credit and store card companies clean up their act to get you a fairer deal.
‘Sharp practices by lenders – such as hiking interest rates on existing debts without explanation, sending out unsolicited credit card cheques and raising credit card limits without being asked – these sharp practices should end.’
A recent study by accountants PricewaterhouseCoopers warned that banks are set to hit millions of credit card customers with higher interest rates and annual fees.
The nation currently owes just over £54billion in outstanding balances on its credit cards.
The PwC study suggests the total amount of bad debt on these cards is likely to jump 50 per cent by the end of 2010 to reach almost £5billion.
It warned: ‘Credit will become more expensive as lenders attempt to claw back revenue lost as a result of economic and regulatory pressures.
‘This will be felt through increased APRs, an introduction of fee-based lending or both.’
Source: Daily Mail Co Uk