Millions of credit card holders could be ‘downsold’ more expensive products due to a gap in regulation, a study finds.
This is due to lenders only needing to provide 51% of applications with the advertised representative annual product rate (APR), so customers – in theory – could be sold products with higher interest rates.
This could impact millions of customers according to TotallyMoney, as only half of the 18 biggest balance transfer providers showed the full range of APRs available.
Only 40% of the 2,000 adults surveyed were also aware they could be given a different APR to the offer that was advertised.
The knowledge gap was apparent elsewhere in balance transfers, as less than half (46%) knew they could be given a different credit limit, and just one-third (35%) knew a different offer term could be applied.
Summary box and eligibility checker missing with many providers
Meanwhile, only a third of lenders included a summary box that explains the basic information of what the credit card offers. The feature was introduced in 2003 to give transparency to customers on key parts of the product, including interest rates and minimum monthly repayments.
Also, eligibility checkers – where customers can see if they are suitable for a credit card before applying – were missing in all of the Lloyds Banking Group providers Bank of Scotland, Halifax, Lloyds Bank, and MBNA. So, customers are without the comparison function to decipher up the best credit cards for their financial situation.
Andrew Hagger of Moneycomms.co.uk, which conducted the research, wrote: “While eligibility checkers give customers comfort that their application won’t impact their credit record, in some cases they have no idea what interest rate or balance transfer durations are available as there is no pre-application summary box on the card providers website.
“Customers should be able to see the range of rates and balance transfer durations that each lender offers, otherwise they are going in blind – surely in this day and age providers have a duty to provide such basic information.”
Many people ‘gambling with their finances’
Alastair Douglas, CEO of TotallyMoney, added: “Now, more than ever, people need to be able to take total control of their finances – and a big part of that is knowing where they stand when applying for credit. That includes knowing the level of interest you’ll be paying, the credit limit you’ll receive, and how long of a 0% interest-free period you’ll get.
“But for too long, regulation has allowed the banks to treat credit card applications as if they were a lottery – and to make things even more concerning, many people aren’t even aware they’re gambling with their finances.”
Douglas believes transparency for customers should be improved and said there is “a need to be upfront with customers about how products and services work while ensuring they’re easily comparable.”
“Key to that is making sure that what people see is what they’ll get,” he added.
Response from lenders
Following the research, a Barclaycard spokesperson told YourMoney.com: “Barclaycard is a responsible lender, committed to achieving positive outcomes for our customers
“The rates we offer customers are primarily eligibility-led, with the vast majority of consumers seeing their eligible rate and pricing upfront before taking out a card. This enables us to support more customers with access to credit.”
An HSBC UK spokesperson said: “Making sure we lend responsibility is a priority for us, our customers are always notified of the offer they will receive before taking out a credit card.
“There are a number of factors taken into consideration when applying for a credit card with us. The APR and promotional period offered will depend on the customer’s circumstances including their credit score. We adhere to the relevant regulation that ensures we offer the majority of our customers the advertised headline rate.”
