At the end of June 2011 Barclaycard with celebrate its 45th birthday. It is the country's oldest credit card and one of the lending world's most recognised and trusted brand names. Initially offered to a million specially selected customers credit cards have now become commonplace, most UK adults have at least one and it is not unusually to have three or four cards with different lenders. As the credit card market has developed customers are more willing to shop around for deals, cash back incentives and interest free balance transfers. Barclaycard remains one of the country's biggest credit card brands, though, with 8.4 million cards currently active. That means one in five UK credit cards is a Barclaycard.
From humble begins credit cards have risen to become the country's quickest and easiest form of borrowing. The UK's love affair with credit cards has not been without incident; however, and in the last 6 years the industry has been rocked by not one, but two scandals.
In 2006 reports released by The Office of Fair Trading (OFT) and The Financial Services Authority (FSA) highlighted the issue of payment protection insurance mis-selling. Payment protection insurance is sold alongside credit cards and can be known by several different names including card PPI, Card Protect and card repayment protection. Barclaycards version of this cover is called Lifestyle Plan. Essentially, regardless of the name, the cover provides similar benefits. Most payment protection policies cover the credit card holder if they cannot work due to sickness, redundancy or accident by stepping in to take over repayments. The trouble is there are several issues with the cover including the fact it can be expensive, doesn't always offer a very high rate of protection and it has many exemptions.
Credit card payment protection, with Barclaycard and most other providers, is sold a little differently from traditional PPI policies. It is calculated on a monthly basis and is usually dependant on the customer's outstanding balance. The cost can vary, but is usually between 79p-£1.50 per £100 outstanding. This means if you owe £5,000 on your credit card you could be charges between £39.50-£75.00 per month for payment protection cover. That could be as much as £474.00-£900 per year.
In addition to the potentially high costs of credit card PPI it also, statistically, doesn't offer a great deal of protection. An investigation by The Competition Commission found that just 11% of people who try and use their card Payment Protection are successful in doing so. This means that nearly 90% of customers may be paying for card PPI that they potentially cannot even use.
The reason for the high rate of rejections for card PPI is, in part, caused by the high number of exemptions. Many circumstances are not covered by the insurance and customers are often not aware of this until they attempt to use the cover. Barclaycards cover, for example, in line with most other credit card PPI policies, does not cover pre-existing medical conditions. This means if you have a pre-existing condition and it worsens, forcing you to take time off work, your card PPI is unlikely to cover you.
The other scandal to hit the credit card PPI industry concerned charges applied for late payment and over the limit fees. Also in 2006 a separate investigation by The OFT found the charges applied by many lenders were unfair. It was discovered that some lenders were charging up to £35 on each occasion a customer made a late payment or accidently exceeded their limit. These kinds of charges generated around £300 million a year in revenue and were viewed by many as penalising the most financial vulnerable. The OFT's investigation suggested all charges should be capped at £12 and most lenders, including Barclaycard, have now followed this advice.
The media interest caused by the payment protection scandal has seen the number of unhappy customers applying to claim back PPI rise every year since The OFT and FSA investigations. The OFT's investigation into charges also means customers who believe they have been charged fees that were unfair can now also make a claim. To find out more about reclaiming bank charges or mis-sold PPI talk to an member of our claims team on 0207 471 2000.