Barclays to punish late payers

UK bank Barclays wants to charge higher interest rates on loans to late payers and people regularly running up large debts.

The bank plans to test so-called risk-based pricing in the autumn, but has not yet decided whether to impose the charge structure on all its customers.

If this new form of risk pricing becomes more prevalent it could lead to more financial exclusion

Consumer Association

Consumer groups say Barclays policy targets the poor and is driving people with financial problems into further difficulties.

Risk-based pricing is common in the United States, while in the UK it is used by some credit card companies like American Express and Capital One.

Barclays would be the first UK High Street bank to use such pricing methods, but the move is bound to expose it to criticism of favouring the rich.

Barclays hit the headlines recently when it was one of the last banks to hold out for charging customers of other banks to use its cash machines - a policy which has now been abandoned in the face of public criticism.

Punishing the poor

Late payers tend to be poorer people, and once Barclays introduces risk-based charges, they will be even worse off if they bank with Barclays.

We are not aiming to create any financial exclusion by this move ... we are aiming to make our pricing policy as transparent as possible

Barclays

But Barclays says it is now about income, but diligence.

"It will be about how the customer has handled their accounts with us," said Martin Binder, head of personal lending at Barclays.

"Things like spending less than or equal to your income every month. The amount of income is almost an irrelevance."

But David Cairns, of DebtCall, a national firm of independent debt counsellors, said: "This is the first time a major high street lender has adopted the idea of differential pricing."

"We are concerned that this will drive people who are already exposed and in difficulty into further difficulty", he added.

The Consumer Association warned that risk pricing "could lead to more financial exclusion".

A spokeswoman warned that all consumers could be worse of: "It could make it more difficult to compare rates and shop around as there would be more than one rate for a particular loan."

Cherry picking the rich

Other UK banks are experimenting with new pricing schemes as well.

Cahoot, the internet bank set up by Abbey National, has a range of interest rates based on creditworthiness.

Banks tend to make most of their profits from a small percentage of their customers, 'high net-worth individuals' with lots of money.

It is not unusual for banks to try and "cherry pick" such customers. The whole concept of internet banking has been described as an exercise in cherry picking, as it tends to shut out poorer people that cannot afford personal computers.

But Barclays' trial raises the issue of financial exclusion, just weeks after the bank was accused of abandoning rural England when it announced the closure of 171 banks.

The government's review of the banking industry, the Cruikshank report, concluded that an important section of the community lacked access to banking services.

Risk-based pricing is common in the insurance industry, with people in rich low-crime areas paying lower premiums than customers in poorer, high-crime boroughs.

Such policies have come under attack in the United States, where activists accuse insurance companies and banks of "red-lining" certain areas where it is impossible to get loans or insurance.