CREDIT CARDS

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After that 0% start on your plastic, you could be tripped up by high fees. But things are set to change. Flexible friends" was the nickname given long ago to our credit cards. But now they can seem more like fair-weather friends, with whom we must stay on constant alert. Step past any welcoming 0% introductory offer and you'll find yourself tangled up in fees, seesawing annual percentage rates (APRs), vanishing cashback, potential penalties and balance-transfer rates tied to onerous terms and conditions.

However, the Government is at least trying to stop us walking blindly into a trap. Changes to the Consumer Credit Act on 31 October 2004 will force lenders to muffle the 0% credit deals screaming at us from adverts. Instead, we will be able to compare a single APR, the rate to which we are switched at the end of any introductory offer, calculated in the same way by every lender.

This figure will also have to be the most prominent part of an advert. Barclaycard's latest deal shows how you need to keep your wits about you. After a three-month 0% introductory offer, you'll switch to a much less friendly APR of 15.2%. Transfer any balances and you'll also be charged a 2%, capped at £35, although you'll get 0% on the outstanding amount until 1 September 2005.

But watch out if you transfer more than £5,000: you'll then be charged 6.9% on any amount above this, as well as the 2% fee on the first £5,000. Fay Hogg of card firm Mint believes consumers are slowly becoming more savvy about their plastic and know what they're getting into.

However, it appears we're not so alert to punitive penalties for mistakes such as late bill payments or spending that breaks through credit limits. "By and large, people are not aware of such fines. Most think that with a late payment, say, the credit card company will simply charge you interest on the amount," says Richard Mason of financial information website moneysupermarket.com.

This certainly isn't the case, fines can be heavy and vary between providers. For example, Nationwide charges £15, while J Sainsbury has a £25 penalty. While a one-off late payment won't hurt too much, the real damage is done to your credit reference, warns Mr Mason. "You may find you won't be able to manage your debt so easily through 0% deals with lenders elsewhere."

Simply using a credit card at an ATM, both here and overseas, will also dent your finances. For example, use a Mint card to pull cash out of the wall on a UK high street and you'll be charged 15.2% interest straight away, regardless of any 0% deals, as well as a 2% fee (or £2 minimum). Overseas, a withdrawal with the same card will cost you 2% (minimum £2) on top of a 2.65% foreign currency loading fee.

For this reason, credit cards are often best used only in an emergency, although Nationwide's Cash Reward credit card carries no foreign currency fee anywhere in the world and has a lower 1.25% withdrawal fee. Other cards still carry a fee simply for keeping them in your wallet. For example, Citigroup charges an annual £25 for its AAdvantage Gold Visa card: the advantage is that you can build up air miles for travel on American Airlines.

The Co-op charges a one-off fee of £120 for its Gold Advantage Visa. A spokesman says the card offers a low APR (9.2) for those who don't want the hassle of constantly shifting their debt. One way to take control of the costs is to build your own card. Insurer More Th>n and Accucard allow you to choose a higher APR, say, to benefit from a better cashback deal. (Source: The Independent)

Credit card penalty charges are to be slashed after companies were ordered to stop profiting from “fines” for late payments. The Office of Fair Trading said that credit card providers could only charge for the actual costs incurred in processing late payments, such as postage, stationery and staff costs and that penalties should be no more than £12.

The OFT said that it would be applying the same principle to other charges such as those for overdrafts, store cards and mortgages. Stephen Hone, of the website www.penaltycharges.co.uk, said, “They’ve sat down, had a nice chat with the banks and decided on something that will keep them from having to take them to court. But at what point have they spoken to the consumers? The charges are still extortionate.”

Mr Hone, a law student who took Abbey National to court over a £32 penalty and was paid £5,000 by the bank to drop his claim, said, “People have been paying these ‘illegal’ charges for the past six years. They should be considered retrospectively and those who have defaulted should be removed from the default register.” (Source: Times Online, Apr/06)

A survey by Moneyfacts shows that six credit card companies have been quietly raising a variety of charges to restore their profitability and that offers to transfer a card balance free of charge have almost all disappeared. Banks are responding to a ruling by the Office of Fair Trading (OFT) that credit card default fees should be cut to just £12. The six major credit card firms highlighted by Moneyfacts for the recent introduction of higher charges are the Co-operative Bank, GE Money, Marks & Spencer, the Nationwide and Northern Rock. Moneyfacts accuses Lloyds TSB of being particularly sneaky.

Michelle Slade of Moneyfacts said, "Cash withdrawal fees and foreign usage charges are rising, but perhaps the sneakiest of all is the requirement to make purchases as part of a 0% balance transfer deal." Moneyfacts says Lloyds TSB is negating the apparent advantage of its 0% nine-month deal for balance transfers, by insisting that customers make a purchase of at least £100 with their new card within the first three months.

That purchase will attract an interest charge of either 15.9% or 17.9% and will not be paid off at all until the cheaper, transferred, debt has been paid off in full. However, in response, Lloyds TSB said that the full terms of the 0% deal was "very clearly communicated in customer literature." In addition, the bank said that the £100 purchase that customers had to make to obtain the 0% deal was itself subject to an initial three-month interest free period.

In the aftermath of the OFT's ruling that credit card default fees should be slashed to just £12, many credit card companies raised their basic interest rates. Since then, the banking group HBOS has revealed that it would lose £60m in income this coming year as a result of the OFT's ruling. Other charges were introduced as well. Lloyds TSB announced it would charge customers £35 a year if they did not use their credit cards enough and HSBC said it would charge much higher interest rates when customers used their credit cards for gambling. (Source: BBC News, Mar/07)