The UK’s main financial regulator recently turned the heat on the credit card industry, suggesting that too many cards have been designed to lure people into debt. With this in mind, is NatWest offering a change in approach?
Last month, the Financial Conduct Authority launched an inquiry into the credit card market, hoping to find out more about how the industry works with people who are already experiencing financial difficulties.
It also wants to find out whether there are too many hidden complexities in lenders’ terms and conditions.
There are 30 million credit card holders in the UK and 56 million cards in circulation, with many households choosing to juggle several credit cards at once. Latest Bank of England figures show that gross lending on credit cards rose above £13 billion in March. This compares to £12.2 billion a year ago and £11.5 billion in March 2012.
Clearly, the balance between offering credit and remaining responsible is becoming increasingly important for both lenders and regulators to get right.
And one of the problems frequently raised about credit cards is the lack of clear information about charges.
The headline deals currently available on credit cards – up to 18 months at 0% on purchases and 31 months at 0% on balance transfers – are staggering. If you’ve got an immaculate credit record and are scrupulously careful about your repayments, these can prove to be excellent deals.
But deals of this kind are normally subsidised by those who fall foul of terms and conditions and subsequently end up paying full whack on their balance before they know it.
Furthermore, a long-term balance transfer doesn’t always encourage customers to pay off their debts within the 0% period. And once a fee of up to 3% has been applied to the balance, there could be another three-figure sum to add to the total.
NatWest’s Clear Approach
NatWest has tried a different approach with its Clear Rate Platinum card that will surely keep the regulators happy.
The bank recently axed all introductory offers across both its savings and credit card products, saying that it wanted to offer its customers simpler and clearer products.
The strikingly simple Clear Rate Platinum does represent a marked difference from the old approach, competing with the best low-rate cards on the market.
With no confusing terms or deceptive gimmicks, the card charges from just 6.9% (variable) for both balance transfers and purchases, though depending on circumstances, some customers will be offered a rate of 9.9% p.a. or 14.9% p.a. (variable).
Those who transfer a balance to this card will not face any balance transfer fees, which can easily reach 3% of the balance with other providers. Instead, the NatWest card charges a single straightforward annual fee of £24.
If you spend £1,200 at a purchase rate of 6.9% (variable) with a £24 annual fee, your representative APR will be 11.1% (variable).
This is some distance below the average credit card rate, which reached 18.31% in February 2014 (Bank of England).
At this average rate, every £1,000 of debt would cost credit card holders around £183 in interest per year. They could reduce this by up to £114 by switching to the Clear Rate Platinum. The bank’s quick calculator allows interested customers to find out how much they could save in charges compared to their current card.
So, while NatWest’s Clear Rate card appears to pale into insignificance compared to the flashier headline offers, it does have its cost-saving advantages.
And once a customer settles with this lower rate card, there should be no need to keep transferring balances to avoid the sky-high charges that tend to follow a 0% offer.
The NatWest card represents a straightforward, gimmick-free approach, offering affordable lending at sustainable rates. It may yet prove to be the direction that the credit card market is ordered to follow. For now, though, overpaying customers could get themselves on the bandwagon early and start saving a bucketload.
NatWest’s Clear Rate Platinum
- A simple, gimmick-free credit card.
- Low rate for balance transfers and purchases – from 6.9% p.a. (variable).
- Annual fee of £24.
Representative 11.1% APR (variable) based on an assumed credit limit of £1,200. Standard interest rate for purchases: 6.9% (variable). Annual fee: £24.
Your actual credit limit will depend on NatWest’s credit assessment of you. The actual APR you receive will depend on your circumstances.