Two more credit card rip-offs

by Ed Bowsher on 23 June 2009  |  0 comments
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Here the lowdown on two more credit card rip-offs we want to clamp down on.

Let's be honest - most of us use our credit cards to withdraw cash when we're either financially desperate or drunk. Either way, we're vulnerable - and I think it's really bad practice for credit card companies to exploit that vulnerability in the way they do. 

When it comes to credit card cash charges, four things make me hopping mad: 

1.) Credit card cash withdrawals are charged at an absolutely enormous rate of interest - typically 25-28% APR. This rate can be well over 10% higher than the purchases rate charged by the same card. Why? The only rational explanation is that credit card providers have seen the chance to make a quick buck. 

2.) When you make a purchase using a credit card, you have a period (usually between 50 and 59 days) before interest starts being charged. However, interest starts being charged on cash withdrawals from the moment that money pops out of the machine. What a rip-off! 

3.) On top of the enormous rate of interest, you'll also get hit with a cash withdrawal fee of up to 3% of the amount withdrawn. And there's usually a minimum fee of £2-£3, no matter how small the amount you're taking out. 

4.) As a final smack in the mouth, negative payment hierarchy will usually kick in. As I explained in this post, that means you can't repay the interest you're being charged on your cash withdrawal until you cleared the rest of your credit card balance. Disastrous! 

Credit card providers sometimes argue that they impose these charges because credit cards aren't designed to be used in this way. 

I guess that's just about a reasonable argument but it still doesn't justify gross profiteering. My understanding is that the actual cost of a cash withdrawal to the bank is around 50p, so if you limited the charge to £1, the bank could still make a profit whilst users wouldn't be ripped off. 

In our credit card charter, we've said that charges for credit card cash withdrawals should be limited to £1 per transaction. And interest on cash withdrawals should be charged at the same rate as purchases for that card. 

I should stress that all the rip-off techniques I've outlined here also apply to the seemingly innocuous credit card cheques you often get sent by your card provider. 

And these cheques are sometimes marketed as ways to help you 'make ends meet' at expensive times like Christmas. How despicable is that! 

We believe all unsolicited credit card cheques should be banned. Earlier this year, the Government said it would introduce legislation to deal with this point. We welcome that announcement, but we'll carry on campaigning until any such law is passed!