Paying for gift vouchers with your credit card rather than cash is set to cost many shoppers a great deal more in the latest wheeze by banks to squeeze more money from their customers.
Following the ruling by the Office of Fair Trading last April that effectively forced card companies to cut their penalty charges for late payments or for going over credit limits to £12, many have been increasing other card charges to recoup lost revenues.
In the latest development, Royal Bank of Scotland, which includes NatWest and the Mint card, is to become the first bank to start treating gift vouchers, gift cards or stored value card purchases like cash withdrawals, charging much higher rates of interest.
RBS customers now buying gift vouchers with their credit cards will be charged at the cash rate of 24.9 per cent and not the lower purchase rate of 16.9 per cent.
The move puts gift vouchers into the same category as credit card spending on gambling, foreign currency, travellers’ cheques, electronic money transfers or finance payments such as mortgage or loan payments.
“Where a transaction is effectively a cash equivalent or substitute, we are now treating this as a cash advance as this is a more accurate categorisation of the spend,” confirms RBS.
But consumer groups say the move is yet another “stingy” development for the industry which has over the past year subjected customers to a raft of interest rate rises and new fees. “This is a step too far and can only be as a result of default fees being capped by the Office of Fair Trading last year,” says Teresa Fritz, principal researcher with Which?, the consumer rights group.
“A lot of people will get caught out as many people use their credit cards to buy gift vouchers. If they are also put off using their cards for these purchases, they will lose the valuable consumer protections inbuilt for credit card purchases.”
The only positive for cardholders is that RBS is not imposing a handling fee of 2.5 per cent, normally attached to cash advances, and is keeping an interest-free period of up to 56 days on the purchases. But while this is a concession, some say it will only lead to further confusion as more lenders are likely to follow suit.
“Consumers are going to have to be very vigilant about what transactions are treated as cash and purchases,” says Robert Kenley, head of credit cards at Moneysupermarket.com, the price comparison website.
However, it will be a lottery as to whether RBS customers buying gift vouchers are charged the higher interest rate because not all retailers have the technology to recognise the purchase as a cash advance.
“Where the merchant’s acquiring code allows us to identify them as providing one of these cash equivalent services, the transaction will be treated as a cash advance,” says RBS.
In a separate move also likely to affect thousands of customers, RBS is imposing a £12 fee on customers who do not advise them of a change of address. The fee will be levied if two statements are returned.
The developments at RBS come as dozens of lenders have raised their interest rates or imposed new fees following the OFT ruling.
Since the ruling, average APRs have increased from 15.19 per cent to 16.60 per cent for purchases and from 20.37 per cent to 23.01 per cent for cash withdrawals, according to Uswitch.com, the price comparison website.
Nearly 30 card providers have also raised their cash withdrawal fees from an average of 1.9 per cent or a minimum of £2.20 to an average of 2.3 per cent or a minimum of £2.50.
“In many ways, credit card providers have squeezed every last penny out of consumers to recover their lost millions and have more than recovered it over the last year,” says Nick White of Uswitch.
Card fees, ranging from £2 a month to an annual fee of £20 have also become a feature of the market as have charges for “low usage”.
Those wanting to flee to a better deal are also facing steeper balance transfer fees and consumers using their credit cards to gamble are also being hit as some card companies are treating the transactions as cash advances.
“At least as a purchase transaction the customer receives a number of days interest-free and as long as they pay the debt off at the end of the month, they incur no extra costs,” says Michelle Slade, of Moneyfacts, the financial information group. “As a cash transaction the customer pays the cash withdrawal charge and incurs interest from day one, so just like taking cash out it starts to become very expensive.”
Consumers are urged to take their business elsewhere if their bank makes their terms less favourable.
“There are still plenty of card providers who aren’t penalising their customers,” says Fritz. “If you don’t like what your bank is doing, then move.”