Rebuke for bank over credit card 'upgrade

Jobs & Money can this week reveal a new marketing "upgrade" tactic by credit card company Capital One which has been instantly condemned by consumer advocates.

The bank has been sending leaflets to its Platinum Plus card holders telling them of changes to the terms and conditions of the card and marketing it as an "upgrade." But some customers are angry at the way it is being done and are questioning whether it's an "upgrade" at all.

Capital One refuses to say how many Platinum Plus cardholders it has, but the figure could run into hundreds of thousands. In the past 12 months, the reputations of credit card firms have taken an unprecedented battering.

Perhaps the most high profile example was MPs on the powerful treasury select committee lambasting card bosses at a series of hearings for "fleecing" customers with high rates of interest and penalty charges.

But the firms have also been targeted for their persistent use of questionable marketing tactics. And any hope that the deluge of bad publicity might force them to toe the line seems to have been dispelled by the actions of some card providers.

Capital One has been at the forefront of promoting 0% card transfer deals and has even made it into the best buy tables on occasion. But its latest tactics have resurrected the spectre of the recent marketing manoeuvres by other firms that have landed themselves in trouble with regulators.

Take the reprimand last year of Barclaycard by the Office of Fair Trading for wrongful marketing when it was told to withdraw publicity for it's "0% for life" offer because it wasn't true. Meanwhile, M&S was taken to task by the regulator for being in breach of consumer credit legislation when it sent out unsolicited credit cards to its store card holders.

And then there's the less serious, but still worrying, slap on the wrist for store card providers, GE Consumer Finance, by the OFT. In January this year GE was targeted for failing to "properly inform" holders of its Harrods card that they did not have to take up the offer of converting to a Mastercard credit card.

So what has Capital One done? First, it turns out that the "upgrade" mentioned in its literature is primarily down to the introduction of a new "cashback" facility.

Second, the interest rate is going up almost two percentage points (a lot in credit card terms) to 15.94% - and this isn't spelled out until quite late in the literature. Third, customers are given just seven days to decide if they want to take up the "upgrade" and must "opt in" by contacting Capital One if they wish to stay on their existing terms.

Capital One's ploy is not quite in the league of breaching legislation. Card providers can, by law, change their terms and conditions.

But while the law says it is permissible to change terms and conditions - and to give reasonable notice if the terms will disadvantage the customer - it is less clear on how changes should be communicated.

And consumer groups are concerned that when the revisions to the current law hit the statute books later this year, it will still be possible for companies to find crafty ways of painting bad changes in a good light.

A spokeswoman for the Consumers' Association says: "The [Capital One] increased interest rate is disadvantageous to the consumer in our view. We'd therefore like to see them using section 6 of the Banking Code and telling customers about it 30 days before it happens, rather than relying on section 4 of the banking code which sets no time limits.

"We'd also like to see Capital One really making it clear that this is a trade-off offer; a cash back if you accept a higher interest rate."

Capital One (which is still in the process of signing up to the Banking Code) says it complies with "the spirit" of the code and in many cases, exceeds its requirements.

A bank spokeswoman says the upgrade, and the way customers were told about it, adheres to consumer credit law, and insists the new APR remains "competitive".

But where does this leave customers? Can they rely on banks' marketing material to be clear and easily understood?

Consumer credit law changes under way should tighten up regulation. But many people are worried that the changes don't go far enough and that important pieces of financial information will still be presented in a way that confuses, or even misleads, consumers.

Meanwhile, read the literature that lands on the door mat - it may be more important than you think.

Case study: Rise spotted by customer

Rosie Brocklehurst is angry after receiving a letter from Capital One declaring that the bank would change the terms and conditions of her credit card within seven days, unless she told them not to.

Ms Brocklehurst, a charity worker from St Leonards in East Sussex, says it was "shocking." If she hadn't read the marketing leaflet thoroughly, she would have missed the tiny opportunity to prevent the terms of her card being altered.

"I couldn't believe it," she says. "I think it becomes a scandal when credit card companies can do this. I mean seven days! People lead really busy lives and they don't necessarily have time to read all the literature and respond."

Buried at the bottom of the Capital One leaflet was the fact that Ms Brocklehurst's rate of interest would go up to 15.94%.

"If I hadn't read the leaflet closely - and realised that I had to 'opt in' to stay on my existing terms - I would have been paying an additional 2% in interest. That's a lot if you use the card over a long period of time," she says.

Like many people, she took out a Capital One card just over a year ago when the firm was getting good press for reasonable rates of interest. She took up an offer of 13.66% APR, which is at the lower end of the credit card rate scale.

A good rate was all she wanted from the card. She was not interested in other credit cards offering cash back or alternative "added value" features.

"If I'd wanted cash back, I would have asked for it. I gave up my Barclaycard because of all the bad publicity, and I thought Capital One was offering something different.

"I asked Capital One how much I might get in cash back if I were to spend £2,000 between now and January, when the cashback would apply. I was told I would gain the grand sum of £10," she adds.

"It is time for these companies to clean up their act. The government needs to step in and regulate more. More and more people are struggling to pay debt and the banks and credit card companies appear to be encouraging it."