Reject Credit Card Rate Hikes
Fight unfair rate-jacking
For the past few years credit card customers have been receiving letters hiking their APRs by up to 10 percentage points. But you can halt the increase.
This step-by-step guide with free template letters shows you how to deploy hidden rules to reject any rate rises.
In this guide...
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What is rate jacking?
The slap as letters hit the mat is nothing compared to the pain of their contents. For the past few years people across the country have been receiving the depressing news that their credit and store card interest rates are rising, sometimes by up to 10%.
These massive interest hikes from companies such as Amex, Barclaycard and Virgin are what we call 'rate-jacking'. They're hijacking accounts to boost the costs, blighting people's ability to manage their debts.
The increases aren't across the board, they're all about lenders' rate-for-risk pricing policies. This is where the amount they charge depends on customers' credit ratings, yet outrageously it can mean those who've always repaid on time or been generally good customers suddenly face being penalised with hideous rates.
Why's it happening?
Before the recession lenders salivated at sticking their cards in anyone's hands, regardless of affordability. Since the financial crash and even now with signs of economic recovery, the noose has tightened and lenders are much more picky.
For new customers this simply means rejection. Card companies are also targeting existingcustomers who no longer look desirable – whether they've been poor payers or not. Customers who got their cards a few years ago, but who'd struggle to get a card now, can see rates ROCKET – even if they're well-behaved.
After all, boosting interest rates is a win-win for lenders, as it encourages those who can to ditch and switch elsewhere (see below). Those who can't need to pay a huge amount more, helping offset the lenders' bad debts and boosting their profits.
So paradoxically, in the name of responsible lending we're seeing lenders put rates up for those they consider a bad risk. That isn't responsible, it's greedy & dangerous. It makes people LESS, not more likely to be able to afford to repay – proving the old adage that banks are institutions that'll lend you an umbrella when the sun's shining, but want it back when it rains.
It's becoming increasingly prevalent across the board. Here are a few examples from the MSE forum:
From 0% to 31% in one fell swoop...
I stupidly ran up a £10,000 debt with MBNA. I was on a promo interest rate keeping the payments down. I lost my job and was out of work for 3 months, during which I missed one payment and forfeited my promotional rate. They've now put my interest rate to 31%.
I called to explain that I'm now employed again and will do everything I can to repay my debt; but they're leaving me on the 30% interest rate, and want £700 before they'll discuss anything further.
From 19.9% to 26.9% with a simple letter...
Egg sent me a mail yesterday stating that from next month my interest rate is increasing from 19.9% to a SCANDALOUS 26.9%.
I have quite a high balance (long story, don't criticise!) so this just seems to me to be them being very greedy and grabbing money from high balance customers who are perhaps not in a position to do very much about it.
Better to leave it as it is
Barclaycard tried to jack me by 5% from 16.9% to 21.9%.
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Step-by-step to beat rate-jacking
Before we begin, the most important thing to say is that...
You CAN beat rate-jacking
First call up and politely request it doesn't increase your rate. It can work, though it's rare. If you have any savings, simply repaying the debt is usually the best plan (see the Repay Debt with Savings? guide). If not, follow the steps below.
Step 1: Ditch and switch
If possible, simply shift your existing debt to a new card at the super-cheap Balance Transfer rate – which is both low cost and gives rate certainty.
It's possible to move debt to interest-free deals for almost three years, or lock in a long-term rate of around 6.4%. As these are likely to be far cheaper than what you're paying now, it's the first move. However, don't try this if:
You've a middling to poor credit history To get a decent deal, you'll need a good credit score (see the Boost My Credit Score guide). This is likely to mean you've a decent income, have never defaulted and have few or no late payments.
If not, or you usually get turned down for new credit, think twice before applying. There's no point if you know you'll be turned down, as it just adds another footprint to your file.
You're struggling to cover your basic outgoings If you can't make your minimum repayments as well as rent/mortgage and basic bills, by far the most important thing to do is to get non-profit debt counselling help.
If you've a 0% promotional deal and make a late payment, most credit card companies instantly ditch the cheap deal, fine you £12, and jack you to the standard APR rate of 19% or more. Sometimes they will shift you to the standard rate AND jack it too.
If that's why you're reading this guide, while shifting debts may be the quickest solution, do try to regain your 0% deal too. Call the company to politely explain what's happened, tell it you're a good customer and see if it will reinstate it – this does sometimes work.
If it returns you to the promo deal
Immediately set up a direct debit to repay every month. Even if this is for the minimum repayment it means you'll never be late again (and rarely will you be able to reinstate it twice) but then always try to manually pay more on top. See the Danger: Minimum Repayments guide.
If it refuses to budge
If the card company refuses to budge, sadly there are few rules as technically you breached its terms and conditions – so jump to Step 4. However if it didn't just drop your promotional rate, but also increased your standard APR, it's worth reading Step 3.
Since 2009 there's been an option to force it to halt the increase, but first you need to know the background.
Most credit cards are variable rate which means lenders can shift interest rates, both with movements of the Bank of England base rate and willy-nilly for their own competitive advantages.
However in late 2008, the Government held a credit card summit, and warned lenders it'd ask for an Office of Fair Trading investigation if it didn't commit to treating customers fairly. On the back of this a set of principles came into force in 2009, which were slightly amended two years later.
In many ways they are tepid, though crucially they include a guarantee to freeze rate increases. Below we've included the full published text (read the direct source on the UK Cards Association website or the explanation in the Lending Code) and our plain English translation...
No rate increases in first year
Provided a customer manages his/her account in accordance with the product's terms and conditions we will not: Increase interest rates within the first twelve months of a customer having a credit/store card.
Translation: Lenders agree not to increase interest rates within 12 months of a credit or store card being taken out. Sadly this only applies to standard APRs, not losing 0% or other promotional rates.
Any catches? Do note the disappointing 'providing they've met the T&Cs' provision which means any minor infraction, even a day's late payment may kibosh this promise. That's why we say this rule is tepid.
Even so, unless you've made a substantial breach of its terms it's worth calling, quoting these rules and trying to invoke their spirit.
Only one rate rise every six months
Provided a customer manages his/her account in accordance with the product's terms and conditions we will not: Increase interest rates more often than six monthly beyond this period.
Translation: After the first year, rates shouldn't be increased more than every six months.
Any catches? Again though, note the 'providing they've met the T&Cs' get-out clause which means even a day's late payment could mean you are rate-jacked.
Explain why the APR was increased
If the customer asks, we will ensure that our staff are able to provide the customer with an explanation as to why an interest rate may have been increased.
Translation: If you ask, you should receive an explanation of exactly why you've been rate-jacked.
Any catches? The worry here though is it will simply say "because of your credit score" which, as all credit scoring systems are different, (see the Credit Rating guide) is mostly meaningless.
We put this to the UK Cards Association, the body which negotiated with the Government on the card companies' behalf. Its opinion was:
Just saying this is because of your credit score isn't the best explanation, but we don't formally have a view. The role of monitoring this is with the Lending Standards Board. It's taken a dim view in the past of customers not being given sufficient explanation of why decisions have been made about them.
So we put it to the Lending Standards Board (LSB), which responded:
The 'it's due to your credit score' is fairly minimal, but could suffice as it indicates it's not from an across the board repricing. If not, it is open to the customer to ask for a fuller explanation, then we'd expect the staff (or supervisor) to explain about the role of credit reference agencies, that the customer can obtain a copy of their CRA file and how, and give examples of things that can affect someone's credit score.
Our view is this isn't good enough. It means nothing. Yet as the LSB is the banks' own self-regulatory body it's not too surprising. We would certainly advocate continuing to pursue a complaint to the Ombudsman, which is likely to take a more robust view.
Ultimately there are no hard rules on what is appropriate. But if you only get a woolly response, continue your complaint up to the Ombudsman – see below.
No increases for those with debt problems
We will not increase interest rates in the following circumstances. Where a customer has failed to make the minimum contractual payment requested on the last two or more consecutive monthly statements; or Where an agreed repayment plan is in place in respect of the account; or Where we have been formally notified by a not-for-profit debt advice agency that the customer is in serious discussion with it.
Translation: They won't increase your rate if you've fallen behind on payments by two months or more, or those who have sought help from a debt advice agency. So the crucial message is...
If you're in trouble, seek help from a non-profit debt counselling agency immediately to prevent the rate rising.
They will give 30 days' notice
We will always give a customer at least 30 days' notice of an increase in interest rates, so that the customer can make other arrangements, should they so wish.
These will always include the option to close the account and repay the remaining balance at the existing rate of interest, within a reasonable period, having regard to the existing level of minimum payments and the customer's financial situation. Where we offer alternative lending products, we may also provide the option to transfer the balance to such a product at the existing (or lower) interest rate.
What does this mean? The phrasing of this is slightly confusing. When they write to you indicating this it may look like you need to pay it all there and then if you close the account. This is not the case, in fact...
This is a way to keep debt at the current rate!
In effect, you will be given 60 days to close down the ability to borrow any more money, but you can still make repayments of the existing debt over time at the current CHEAPER rate.
The rules state you will get a 'reasonable' time to repay it – which is rather vague but will usually be defined by individual circumstances.
To help, we asked the Financial Ombudsman Service for its thoughts:
If a consumer has been repaying the minimum amount historically on the card, it may well be reasonable for them to continue to be allowed to pay the minimum rate. We have not had to issue an Ombudsman's decision on this yet and we would, of course, consider the individual circumstances of the case before doing so.
Here's what the lenders' body, the UK Cards Association, says:
What we've not done is define reasonable but if, for example, I'd only been making the minimum repayment (because that's all I can afford) on a £4,000 outstanding balance, I wouldn't expect my bank to turn round and expect me to pay back in 3 months. So even historically if I'd missed a minimum repayment, I would still expect to be given the same terms as others to repay in a reasonable period.
Therefore if you were previously paying the minimum repayments, it is likely to be possible to keep doing so, though if you were paying more previously and decided to start paying less as a result this may be deemed 'unreasonable'.
It's also worth noting there's no 'you mustn't have broken the T&Cs' get-out for lenders here, so even if you have missed or made late payments, this should still be allowed.
Any catches? Do ensure you've got a direct debit in place to make payments each month on time (you can always manually pay more). Failing to do that could kibosh the whole thing.
Remember this means you are closing down your ability to borrow more. So ensure you have the financial facilities to function without credit – though relying on it isn't a good sign (see the Debt Help guide).
While closing an account down shouldn't affect your credit files (see the Credit Rating guide) as other lenders won't know about it – the lender itself will be able to record it on its internal files, which may make it less inclined to want to deal with you again.
What to do if a company breaks these rules...
While not law, so it's questionable whether you could challenge a breach of them in court, these rules now form part of an industry-agreed code of practice.
And that's important, as it means the Financial Ombudsman Service will use it as part of making a decision on whether you've been treated fairly or not.
Therefore if you think your card company's fallen foul of these rules, do the following…
1. Make a quick call
To start with, try calling customer services, and politely ask for the decision to be reviewed. If you're not getting anywhere then try specifically saying you're calling about...
"The December 2008 UK Cards Association principles on repricing"
Then quote the exact rule from the list above. Of course, it's perfectly possible the call centre operative won't have heard of this. Yet quoting the rules often makes them take you more seriously, meaning you'll be escalated to a supervisor, who could adopt the 'less hassle' approach of sorting it.
Just for background, the UK Cards Association is the trade body which agreed these principles with the Government on behalf of the credit card industry.
2. Write a formal letter of complaint
If that doesn't work, you must write a formal letter of complaint about the breach of the rules and request your rate isn't increased. If you don't do this, you can't go to the Ombudsman later. To make it easy, add your details into the template letter we've drafted for you.
3. Complain to the Ombudsman
If the company rejects your complaint, fill out the Financial Ombudsman's Service complaint form, which is completely free to do. Simply quote the rules again along with which one the company has broken on your form. Don't worry, you will never need to appear in person, it's just a way of complaining.
The Ombudsman is independent and will put your points to the company – which must then either choose to settle or to argue the point with the Ombudsman.
It's also worth reading the next section as you may find other points to add into your complaint if you've been mistreated another way.
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Even if lenders haven't broken the code of practice, if they've behaved unfairly you still have a right to be 'treated fairly'. Though of course, this is all a question of opinion.
But you need to understand…
This is a negotiation
Don't think about hard and fast rules from now on, because there aren't any. The aim here is to effectively negotiate or pressurise the lender into allowing you to keep your rate. Merely the process of making a formal complaint may do the job for you.
And there's a very specific piece of info those who've been rate-jacked can use for this...
Card companies don't want to reveal exact details of how they make their 'rate for risk' decisions
Credit scoring is a secretive process jealously guarded by lenders. Therefore it is possible when you demand an explanation, you won't get much more than a "you failed the credit score".
If you've been a good customer, and made few or no late payments, under the rules you've a right to know how the decision was made. You should push this, including going to the Ombudsman.
In the past the Ombudsman has reported that when it's asked companies for their lending criteria, companies have simply settled instead of providing it.
That's the aim here – to use this to simply push the companies to not increase your rate as "it's not worth it".
The Ombudsman's view...
To help with the exact rules on fairness, we put a few general scenarios to the Financial Ombudsman Service (FOS). Click them for the answers.
A consumer could make this argument, but generally as long as the credit card company was adhering to the new principles, it'd be up to the consumer to decide whether they wanted to pay off their debt at the existing rate or continue with the credit card company on a higher interest rate.
Consumers can ask firms to provide more detail and certainly if the firm had put up the interest rate, they may have cause to request further explanation. In these circumstances, if the Ombudsman Service was investigating a case, we would expect the firm to provide more detail instead of just referring to the consumer's credit score.
Missing payments isn't the only reason people fail credit checks though. If someone was near their minimum repayments and using cards to pay utility bills or other basic outgoings this could be seen as a trigger.
As you know, the Ombudsman primarily looks at cases where consumers have lost out financially as a result of something a firm has done – generally, if a consumer has a right to pay off the credit at their existing rate of interest, they may not necessarily be disadvantaged financially as a result of the firm's actions.
We've only seen very occasional complaints like this. It would depend on the circumstances, eg, had proper notice been given? How much had the credit limit been reduced by? Generally, we'd expect credit card companies to reduce a credit limit in increments, giving notice to the consumer of what they are intending to do.
We would not generally consider it fair, if a consumer was using a £1,000 credit limit, for a firm to reduce it in one step to £500 – because this would mean a consumer would need to suddenly find £500 to prevent them being from being subject to charges. If a consumer in these circumstances found that they were getting charges, they may well have cause for complaint.
It's important to remember the Ombudsman makes its decisions based on the law of the land, any regulator's rules plus what is seen as good industry practice (see the Financial Ombudsman guide for more info). So if you think you've been treated unfairly, why not tell a friend and see if they agree? If so, then there's no harm taking it up.
Step 5. Seek debt help
If your rate's been pushed up and you're struggling, then it's important to get debt help. There's a full Debt Help guide which will take you through it step-by-step. Yet if the new interest rate pushes you into financial hardship, act quickly.
By seeking help from a non-profit debt counselling agency (see Debt Counselling info), you can actually prevent lenders from hiking your rates – as this is one of the key rules.