Free Reports

The financial industry still doesn't get how to treat its customers

Aug 1, 2016

35

Credit cards can be nasty things. They might be of some use to those who want a painless way to borrow money for the very short term (ie those who can pay it back within a month or two and pay little or no interest on it). But for almost everyone else they are a lousy way to spend.

Rates are high; the lenders are known for their tricky marketing techniques; and, of course, their "friction free" nature encourages overspending. I've written about this before, but this article from the New York Times adds a little extra grist to the mill. In one experiment, those who were told they could pay with a credit card showed themselves prepared to pay double the amount for products than those who had to pay in cash.

The result is, as ever, too many people in too much debt: some 750,000 people in the UK have, for example, only paid the minimum on their card for three years in a row. This is no great secret, so it is no surprise that the FCA has done a full review of the credit card market and come up with a list of recommendations to make things better.

The results are interesting. The FCA likes that the market is competitive - and that lots of consumers appear to understand it pretty well. It doesn't like that around two million people are in arrears or in default on their cards, or that 9% of accounts will take more than ten years to be paid off. So they have come with a list of measures they feel the credit card companies might take to help debtors to help themselves.

They want customers to be informed before they hit penalty levels of borrowing; to get a reminder when their interest-free period is coming to an end; to be able to set their monthly payment dates (just after they get their salary, for example); to be encouraged one way or another not to "anchor' to the minimum payment amount; to have more control over their credit limits (the one on my card was doubled a few months ago - I had to opt out of the rise rather than in to it); and to be contacted early if it looks like they are getting into trouble. That sort of thing.

I have no problem with anything on this list, and I don't suppose anyone else will either. The totally bemusing thing is that credit-card providers are actually having to be told that it is good practice to let people know when their interest rate is about to go from 0% to 15%, or when they are on the verge of trying to spend over their limit or even to prevent people from spending more than their limit!

I have told you before that I am constantly asked by financial providers what they can do to make themselves be more trusted. "Be more trustworthy", I say. It doesn't look like it's going that well.

Please note: This article was first published in Moneyweek on July 27, 2016.

Merryn Somerset Webb is the editor-in-chief of Moneyweek, the best-selling financial magazine in the UK, and is a director of two investment trusts - the Baillie Gifford Shin Nippon Trust and the Montanaro European Smaller Companies Trust. Before joining Moneyweek, she worked at the Japanese public broadcaster NHK, SBC, UBS, BNP Paribas, and The Week. Merryn has a weekly column in the FT and a monthly column in Saga. She is a regular TV/radio commentator and speaker on financial matters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

Oil at Two-Year Highs as Saudi Arabia Engages in Its Own "Game of Thrones" December 12, 2017
Recently I identified five agents of change that I believe investors should know about right now. I'd like to add one more to the list: Mohammad bin Salman.
The GOP Tax Bill Is a Deep State Scam December 12, 2017
The mainstream press seems obsessed by the harm being done to Americans... by foreigners.
India Has 8.4 Crore More Workers in Agriculture Than is Economically Feasible December 12, 2017
A new NITI Aayog discussion paper points this out.
Using Deposits to Rescue Banks is a Bad Idea; It Needs to Be Nipped in the Bud December 11, 2017
The Financial Resolution and Deposit Insurance(FRDI) Bill proposes to do just this.

Equitymaster requests your view! Post a comment on "The financial industry still doesn't get how to treat its customers". Click here!

1 Responses to "The financial industry still doesn't get how to treat its customers"

SJ

Aug 2, 2016

What you find bemusing has actually become the norm. Good article.

Like 
  
Equitymaster requests your view! Post a comment on "The financial industry still doesn't get how to treat its customers". Click here!