BBC NEWS | Talking Point | Forum | Bewildering bank charges: Ask the expert

MPs are recommending tougher rules to make banks offer better accounts to customers which are simpler to understand.

Current charges are so over-complicated that it took a Cambridge mathematics professor several hours to calculate a credit card's annual interest rate.

A House of Commons committee has also criticised the "big four" banks - Lloyds TSB, Barclays, Royal Bank of Scotland and HSBC -for disguising hefty interest rates in their small print.

Their charges also varied by up to 40% on credit cards which quoted the same basic interest rate.

Do you feel confident you are with the best bank for you? Can you work out what your interest rates actually are?

Ashleye Sharpe of Which? magazine answered your questions in a live forum.

Transcript

Dharshini David:
Welcome to this interactive forum. A House of Commons Treasury Committee report has slammed banks over a lack of transparency in their presentations of credit card interest rate charges. Now leading high street banks are making their charges so complex, it took a Cambridge professor most of an afternoon to calculate the interest rate on just one credit card. MPs have issued a warning to banks to stop confusing their customers and have urged an official probe into the small business market. Here to answer e-mail questions on the subject is Ashleye Sharpe of Which magazine.

The first e-mail is from Chris, UK : My bank puts my overdraft interest rate charges in years and the in-house credit card rate in months. Which one is cheaper?

Ashleye Sharpe:
This is a trick that the banks quite often use to make their APRs seem smaller. Obviously if you spread it over a year and do it monthly, it seems quite low but as Chris has spotted, it means that you can't compare with the yearly APR. Now I can't tell which one is higher or lower, but what I can say is, you should ask your bank to give you that monthly APR figure as a yearly figure and they will know exactly what that figure is - they're just trying to confuse you at the moment. So ask for it as a yearly figure and you'll be able to compare it with your overdraft rate and see which one is cheaper.

Dharshini David:
So here again giving us an example of this lack of transparency we've been hearing about today.

Ashleye Sharpe:
Absolutely. There is no excuse for it. They should be able to publish both the monthly and the yearly APR on the statements with no problem at all.

Dharshini David:
Mrs S Mayo, UK: Our problem is that due to moving house frequently over the last few years (five times in four years), we have a poor credit rating. We are repeatedly refused credit - apart from with our own bank where we have a very good credit rating. This means that the only loans and credit cards we can get have to come at very high rates and we can't shop around. Any suggestions as to how we could get round this and obtain competitive rates from other sources?

Ashleye Sharpe:
It's a really difficult problem and it's a tricky one to get right. I'm not quite sure that there's any definite way of solving it but there's a couple of things that I'd suggest doing. First of all get your credit card rating sheets from Experian and Equifax - they've both got websites - if you go to experian.co.uk and equifax.co.uk. They'll be able to send you your credit rating because it might be that there are some other issues on your rating - not just that you've moved house several times and if those are mistakes you can get them removed.

The other thing you can do perhaps when you apply is to send them some copies of your bank statements to show just what a good record you do have because sometimes banks will then say - ok, yes we can actually see that you've given us some extra information here that isn't on your credit rating and we may be able to do something.

But it's an incredibly difficult problem because they've all got their own secret ways of calculating whether they'll offer you credit and if they say no, they say no and they don't always have to tell you why either. So it's very, very tricky particularly when all you've done is move house which is perfectly excusable - it's not like you've been robbing anybody. So, a very difficult one but do check your credit rating and check there's no errors on there because they often creep in and they can cause people lots of trouble.

Dharshini David:
Anthony Parks, UK: I recently transferred a loan amount of £3,000 to a credit card which offered a 6.7% APR for the lifetime of the balance. I am confused because I make payments of £100 every month yet I am faced with £22 in interest charges. Am I really being charged 22% instead of the of the 6% I've been quoted?

Ashleye Sharpe:
It's very complex. It depends on how much he's got left outstanding because if he's paying off £100 a month that's great and he's reducing the level of the debt. But he's still got the outstanding balance. But if he's confused, he should check with his credit card company and get them to explain it to him - most of them will be very happy to do that, particularly the low interest ones who obviously want you to stay with them.

Dharshini David:
Peter Gale, UK: I took a personal loan from Barclays with payment protection. I was never actually informed of what the premium was and when I did enquire I was amazed to find that the monthly premium was a hefty £60 - nearly a quarter of the repayment amount. I chose to cancel it and was met with a barrage of extra charges and a much higher interest rate. Have no I no choice but to pay it?

Ashleye Sharpe:
Absolutely not. This is absolutely disgraceful. We did some research a couple of months ago into payment protection insurance, which should be an optional extra. Everyone should be told whether they're getting it and offered the chance of saying no, I don't want it. Everybody should be told how much it will cost them and how much it will add to the loan. And again you should just be able to say, no I don't want this. I'm very surprised that Barclays has slapped on a load of extra penalties.

What I suggest you do is write to Barclays as an official complaint - go through their official complaints procedure about how you were never told this was applying to your loan etc. If you don't get satisfaction from Barclays, take it to the banking ombudsman who is there specifically to look at cases where your bank is just refusing to solve your problem and hopefully they will come down on your side. Certainly if you can find our Which report on payment protection insurance and how many banks are mis-selling it, it might be worth including in your complaint because there is a massive problem of banks just including this in the quote, so people assume it's part of their repayment and it's just not.

Dharshini David:
Steve, UK: Banks should make interest rates etc. much clearer. However, if you're borrowing money off a company surely it is the person who is receiving the money who should be responsible for checking the interest rates on their agreements? I don't like this "passing the buck" mentality we seem to have in this country at the moment.

Ashleye Sharpe:
Yes, I think that's a fair point - people should compare the interest rates. The problem is at the moment with the confusion marketing on credit cards, you can end up in a situation where you've got two cards, claiming to charge you the same APR of, for example, 15% and yet when you borrow money on the card and start to pay it back, you can end up being charged up to 70% more by one card than another even though they both claim to charge the same rate. So actually it really difficult for the ordinary consumer to compares the rates.

Dharshini David:
Gordon, UK: Having worked at a major high street bank for many years, I can say with full confidence that even the staff don't fully understand these rates.

Ashleye Sharpe:
Well I'm depressed but not surprised to hear that at all. We often do research, checking out bank and building society staff and other financial advisers, and often the advice they give is not great and they don't necessarily know their stuff and the training is poor. Banks are out to make the profits and not necessarily out to make it clear for you.

Dharshini David:
Simon, UK: One way of making the competitiveness of credit card interest rates more transparent would be for there to be a statutory obligation for credit card providers to show on statements a comparison between their rates and the average rate of the 30 or so leading credit card companies. Would this be possible?

Ashleye Sharpe:
It would be possible but it wouldn't take you the whole way, which is very disappointing because actually it's a really good idea and it should be very straightforward. There are two problems with it: one is that you've got standard APRs, you've got introductory rates with balance transfers and purchases, you've often got different rates for people taking money out of the cash point - so that's one problem. But yes, potentially, they could all show the average rates for those different things. The other issue is that you can get cards claiming to charge the same APR but actually they charge you much more on one card than another, so unfortunately the APR isn't the whole story. You need to know when they stop and start charging interest and whether you get cash back on your purchases.

Dharshini David:
So it does sound as if there's a long way to go before finding a solution on this - it's very complex.

Ashleye Sharpe:
It's very complex. What we do at Which when we're doing our best buys on credit cards is we do a total cost comparison for various borrowing scenarios because it's the only way you can actually tell. APR is really important - if your card company is charging 18% or 20% then move to one that charges 8% or so and you will do better. But there's still this different way of calculating interest that can be a problem.

Dharshini David:
Mark Johnson, Nottingham: I was being charged £3 a day plus interest on an unauthorised overdraft, and I did not know this until the end of the month when I got my statement. By this time the charge had accumulated to £93. I think the whole process of bank charges should be brought under independent regulation, where the charge fits the crime.

Ashleye Sharpe:
Yes, I can understand why he would feel like that. At the moment banks are obliged to tell you what the charges are for overdrafts, both authorised and unauthorised, and there is regulation in the form of the banking code and the banking ombudsman if you're not happy. Those charges certainly do seem very high and it might well be worth looking around for a new bank. On switchwithwhich.co.uk site, we've compared over 50 of the UK's bank accounts so that people can find the right one for them, whether they're always in credit or whether they're often overdrawn. So it may well be looking around for one with lower charges for both authorised and unauthorised overdrafts.

Dharshini David:
Hugo, England: Is it possible to switch banks if you're currently overdrawn?

Ashleye Sharpe:
Yes it is which is really good news for people who are sliding into overdraft and getting charged an absolute stack. The banks make money out of your overdraft so as long as there's nothing wrong with your credit rating, many banks will be more than happy to take over your account. At the moment 70% of us bank with the big four banks who charge us up to 18% for overdrafts and yet some of the best accounts charge only around 8% - 9%, so it's well worth moving.

Dharshini David:
It's just that people sometimes think, if I'm debt which other bank is going to want me.

Ashleye Sharpe:
Well you would be surprised - they are very keen to get you're your business. So it's definitely worth looking around. Again try the switchwithwhich.co.uk site.

Dharshini David:
Geoff, England: The most important factor that I am interested in is service - especially the service I can expect when things go wrong. I have a student account with HSBC. They have done loads to help me out - including extending my student account for another 3 years when I decided to do a PhD. Staying with the same bank isn't inertia - it's realising good customer care when you have it and sticking with it.

Ashleye Sharpe:
That's great and I'm glad he's having such a positive experience with HSBC and it shows they're really taking him seriously as a customer. What our campaign is about is saying that for most people, student accounts excepted, the big four banks pay very poor rates of interest and charge high rates of interest. We also do a service satisfaction survey every year on Which and the other three of the big four - Barclays, NatWest and Lloyds - come bottom in that survey. HSBC is better but it's still only average. So we absolutely agree, service is really important and if you're not happy you should move. But if you are happy - yes, by all means stay - we're just concerned that over half the population don't even realise that there are other options paying them better rates out there.

Dharshini David:
Steven, UK: If your credit card charges 18.9% APR on cash advances plus £2 transaction fee and you draw £500 out in £100 amounts, you might as well get a loan from your bank for the £500 as you'll pay nearly half less interest.

Ashleye Sharpe:
What we would say is that it's often not worth taking money out on your credit card if you can possibly avoid it. You would probably be better off extending your overdraft with your bank and using your debit card to draw money out or as he says, get a loan at a low rate. The lowest rates for loans are around 8% - 9% as are lowest rates for overdrafts, so really you should never be paying 18.9% for anything.


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