MPs - do something useful and ban these credit card tricks!
UK politicians should follow Barack Obama's lead and clamp down on the credit card industry's dodgy practices.
So we're coming towards the end of our credit card week. Hopefully, we've given you plenty of advice that will help you make your credit card your servant, not your master.
On top of that, we've also produced a lovemoney.com credit card charter that highlights some of the biggest credit card rip-offs we'd like the government to clamp down on. I've already written about four of those rip-offs this week; I'm now going to focus on the remaining four clauses of our charter and explain our reasoning in a bit more depth.
- The interest rates charged on many credit cards are way too high. Credit card APRs should be capped at Base Rate plus 10%.
APRs on many credit cards are way too high. Let's not forget that interest payments aren't the only source of revenue for the credit card companies, they also take a payment from the merchant every time a credit card is used.
A couple of readers have suggested to me that this restriction is too simplistic. They say that if credit card APRs are kept low, people with poor credit ratings won't be able to get credit cards. And if they can't get a credit card, they'll struggle to prove that they've turned over a new leaf and can now handle debt responsibly.
It's a fair point but I don't think it's an insuperable problem. After all, the credit card companies could offer cards with very low credit limits to this part of the population. Or even charge a small fee.
I want to keep the limit on APRs as it is. Because once you make it more complicated, it'll be easier for the banks to find ways to get round it. Banks are clever like that.
- Penalty charges for late payment of a credit card bill should be no more than £5 per late payment.
Penalty charges are a great way for the banks to make money. We've campaigned against all forms of unfair bank charges for more than two years.
We could have set the cap at a lower level, but at £5, there's no question that the bank's costs are covered, so it's a limit that could stay fixed for some time.
- Special promotional deals - such as the 0% balance transfer - can't be withdrawn after one late payment. Promotional deals may only be withdrawn when the user breaks the rules a second time.
Savvy credit card users never get caught out by late payments as they set up a direct debit to always pay the minimum payment on their card.
That's all well and good, but many people aren't even aware that that option is on offer. And if you lose a 0% balance transfer deal that has a year to run, you're effectively being charged a massive penalty for one small mistake.
Credit card companies can no longer increase credit limits without permission from the customer.
A friend of mine once told me that he completely misunderstood the nature of credit limits when he was a student. When the limit on his card was increased, he thought: 'Great, the bank has given me more money!" and promptly set out to spend it. He didn't understand that he was adding to his debt.
You may be thinking that this guy is a complete twit, and I was amazed when he told me this story. But he's actually a pretty bright guy, and if he thought that, I'm sure there are others who made the same mistake.
And even if you do understand that money spent on a credit card is debt, why should you have more temptation put in front of you when you never asked for it?
So that's it for now on our credit card charter. I just hope that one day, the UK's politicians can follow the US lead and clamp down on some of the credit card industry's dodgiest practices.