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Last Updated: Saturday, 9 December 2006, 13:32 GMT
Cahoot rate hike angers customers
Cahoot website
Cahoot says there are no penalties for early repayment

Online bank Cahoot has caused anger amongst its loan customers by dramatically increasing its interest rate.

The bank, part of Abbey, has written to people with a flexible loan to say their rate is rising from 9.4% to 14.9% on 19 December.

Despite the increase of almost 60%, Cahoot says it still compares favourably to competitors with similar products.

But this hefty price rise could cause major problems for some people already struggling to pay off their loans.

Many will be able to move to a more competitive product but others may find themselves trapped.

Sudden jump

A flexible loan allows borrowers to choose how much they pay off each month, but the interest rate can fluctuate.

This type of loan is attractive to self-employed people and although the Cahoot rate has moved a little before, it has never jumped like this.

Cahoot customer Chris has a 13,000 flexible loan.

What I certainly didn't expect was a 58.5% rise
Chris, Cahoot customer
He was one of many to highlight this hefty and disproportionate rise to BBC Radio 4's Money Box.

"Cahoot sold itself originally on being one of these internet banks with lower rates," he said.

"I always expected that the rate would change within sensible reason. What I certainly didn't expect was a 58.5% rise," he added.

Cahoot is leaving the loans market.

It has stopped offering any new loans or credit cards and is concentrating on savings and current accounts instead.

Chris is convinced this is connected: "To me it is clear - they are leaving the market so they might as well charge as much as they can to any customer foolish enough to stay," he said.

However, a spokesman from the bank denied that there was an intention to run down the business.

Responsible lender?

Another angry customer, June, said the hike will cost her an extra 70 a month in interest.

She told the programme: "I'm not going to carry on paying 14.9%. I found the level of the increase really quite astonishing.

PROGRAMME INFORMATION
BBC Radio 4's Money Box was broadcast on Saturday, 9 December 2006 at 1204 GMT

"It just seemed to me that their policy of these huge increases wasn't in line with their claim to be a responsible lender."

Unsecured loans like this are not covered by the regulator, the Financial Service Authority.

But the Office of Fair Trading is interested and wants any Cahoot customers who feel it is unfair to write to them.

However, Abbey says it has done everything needed under the terms and conditions to inform customers about the rate change.

It said it is merely bringing its rates up to match competitors.

Alternative offer

Meanwhile, Cahoot wants unhappy customers to consider switching to an alternative fixed rate loan from Abbey.

Cahoot said customers who replace the flexible loan with another will not face penalty charges.

The way Cahoot have treated me on this one would not persuade me to deal with their parent company
Chris
It said that some customers will be able to get an Abbey fixed rate loan at 5.8%.

But it is not guaranteed as existing customers will all be credit checked and might be refused.

It is not something Chris will be doing.

"The way Cahoot have treated me on this one would not persuade me to deal with their parent company," he said.

Others lenders like Nat West and Co-Op also offer flexible rate loans at around 15%.

But unfortunately there is no such loan available at the same value as the old Cahoot one.


Customers can speak to a Cahoot adviser on 0844 9000 900 from 0800 - 2000 on Monday to Friday and 1000 to 1800 Saturday and Sunday.

If people would like to contact the OFT about Cahoot they can do so by ringing the OFT enquiries line on 08457 224499 or e-mailing enquiries@oft.gsi.gov.uk.

BBC Radio 4's Money Box was broadcast on Saturday, 9 December at 1204 GMT and was repeated on Sunday, 10 December at 2102 GMT.



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05 Nov 04 |  Business

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