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ombudsman news

issue 113

October 2013

credit cards - case studies

At this time of year, many consumers will be taking on credit for the first time - as thousands of students take on credit cards to help pay their way through university or college. As with any financial product or service, it is important that people understand what they are signing up to - and what they need to do to keep things running smoothly with their credit card.

For many consumers, credit cards can be a useful way of managing their money. But things do go wrong with credit card accounts - and we often find that people come to us with familiar issues like disputed transactions, fees and charges, and problems with promotional offers.

We also see complaints from consumers who aren't happy with the quality of goods or services they have bought with the credit card - and are looking to their card provider to put things right under section 75 of the Consumer Credit Act.

As you might expect, over the last few years we have seen more cases involving consumers who were struggling to make the minimum monthly payment on their credit cards. Three of the following five case studies illustrate typical situations where consumers have been struggling with their finances.

So far this financial year we have received around 5,000 complaints about credit cards - and we are currently finding in favour of the consumer in about a third of those cases. You can find more information about the cases we have received over the last six months in this issue's ombudsman focus.

issue 113 index of case studies

  • 113/1 - consumer complains that bank removed promotional interest rate on her credit card unfairly
  • 113/2 - consumer in financial difficulty complains that bank went back on its promise not to sell his credit card account on to another company
  • 113/3 - consumer complains that bank cancelled his repayment plan after debt management charity failed to renew it
  • 113/4 - consumer complains that credit card was blocked while she was abroad - and that the bank wouldn't unblock it
  • 113/5 - consumer in financial difficulty complains that bank registered default on her credit file - even though she had stuck to her repayment plan

113/1
consumer complains that bank removed promotional interest rate on her credit card unfairly

Mrs C had two credit cards - with a few hundred pounds on each. She received a letter from one of her card providers offering her a 0% promotional interest rate on any balance she transferred to that card.

Mrs C decided that it would make sense to consolidate her borrowing - and save money on the interest she was paying. So she transferred everything she owed onto the credit card that had offered her the 0% interest rate.

Mrs C had been making the minimum payment each month to both her credit cards - by direct debit from the current account she held with a different bank. After she had transferred the balance to just one card, she got in touch with her bank to sort out her payments.

She cancelled the direct debit to the card that no longer had anything on it. And she decided to increase the amount she was paying each month on the other card - to pay off the balance more quickly. So she asked her bank to cancel her existing direct debit payment on that card as well, and instead, set up a standing order for a higher amount.

Later that month, Mrs C's credit card provider tried to take the minimum payment using the direct debit instruction. When the bank said the payment couldn't be made - because Mrs C had cancelled the direct debit mandate - the credit card provider applied a "returned payment" fee to Mrs C's credit card account. And it withdrew the 0% promotional interest rate from her account.

It later turned out that Mrs C hadn't set up the standing order - for the higher amount - in time to meet the payment deadline on her credit card. So the credit card provider hadn't received any payment at all by the due date.

When Mrs C found out that her promotional interest rate had been withdrawn, she complained to her credit card provider. She said that she was a working mum with a young family - and that this had been really stressful for her.

Mrs C pointed out that she had wanted to increase her payments - and that she couldn't understand why the credit card provider had removed the promotional interest rate when she hadn't done anything wrong.

The credit card provider responded to Mrs C, saying that the terms and conditions of her account "allowed charges to be levied and promotional rates to be withdrawn in this type of situation".

Mrs C was not happy with this response - and she asked us to look into her complaint.

complaint resolved

We looked at the terms and conditions of Mrs C's credit card account. They said that if the cardholder failed to make a payment on time, the card provider was "not obliged to refund any charges or interest - or to reinstate the promotional rate". So it appeared that the card provider had been acting in line with its terms and conditions.

We got in touch with Mrs C to listen to her side of the story. She recognised that it would probably have made things easier if she had told the credit card company about making a change to her payment - rather than relying on them being told by the bank. But she said that at the time, it hadn't occurred to her to double check.

When we explained this to the credit card provider, it accepted that Mrs C had tried to do the right thing. The card provider decided to reinstate the promotional rate on Mrs C's account - and, as a gesture of goodwill, to refund the interest it had applied to her account while her complaint was being looked into.

We explained to Mrs C that we didn't think that she or her credit card provider had done anything wrong. And we pointed out that if she had raised the matter with her bank, they might have been prepared to put things right. Once we had explained this to Mrs C, she told us she was happy to accept her credit card provider's offer.

113/2
consumer in financial difficulty complains that bank went back on its promise not to sell his credit card account on to another company

Mr A was struggling to make his minimum monthly credit card payments. He was disabled and wasn't working. He had been in touch with his bank - who also provided his credit card - and agreed a repayment plan to pay off the balance.

Mr A's bank had told him that because of his situation, it would freeze the interest on the amount he owed, and wouldn't apply any other charges to his credit card account. It had also told him that it wouldn't pass on his debt to an outside "debt recovery" company.

About a year after Mr A's repayment plan had started, the bank decided to sell some of its accounts to an outside debt collection agency. Mr A's account was one of the accounts it sold - and as part of the process, his account number changed.

Mr A was worried that his account number had changed. He thought he might miss a payment - because he had a direct debit in place that used his old account number.

He complained to his bank. He said that amending his direct debit would cause him a lot of inconvenience - and he pointed out that the bank had gone back on its promise not to sell his account to another company.

When the bank turned down Mr A's complaint, he asked us to look into it.

complaint partly upheld

We looked at all the evidence sent to us by the bank and by Mr A. We noted that the bank had written to Mr A telling him that it wouldn't sell his debt to another company.

So we could understand why Mr A was worried and frustrated when his account was sold on a year later. We noted that many of the bank's letters to Mr A were confusing - and didn't explain clearly why his account number was changing.

We decided that the bank had been entitled to sell Mr A's account to another company. But we thought that the bank should have given him a proper explanation of what was happening - and how it would affect him.

We noted that the bank had already frozen the interest and the charges on Mr A's account from the point he had told them about his financial difficulties. We also checked to see whether the bank's actions had disadvantaged Mr A in any other way - and we noted that the sale to the debt recovery company hadn't adversely affected the information recorded on his credit file.

Taking everything into account, we told the bank to pay Mr A £100 to compensate him for the worry it had caused him. The bank agreed, and also confirmed that it had already helped Mr A set up a direct debit for his new account number.

We explained to Mr A that he hadn't been disadvantaged financially by what had happened - and that his credit rating hadn't been affected. Mr A was satisfied with the outcome.

113/3
consumer complains that bank cancelled his repayment plan after debt management charity failed to renew it

Mr N had been struggling with his debts for some time. He had been in touch with a debt-management charity. Someone at the charity had helped him set up a repayment plan with his bank to pay off the balance on his credit card.

Just over a year later, the bank cancelled Mr N's repayment plan - and the interest rate on his credit card suddenly jumped from 6% to 29.9% APR.

Mr N got in touch with the bank to find out why it had cancelled his repayment plan. The bank told him that it was the charity's responsibility to contact the bank every six months to renew the plan - and that it had cancelled the plan because the charity hadn't been in touch. The bank wasn't willing to refund the additional interest Mr N had paid - but it did offer to arrange a new repayment plan for him.

Mr N wasn't happy with the bank's response. He complained, saying that the bank was making his situation worse - and it was unfair because he had stuck to the terms of the repayment plan for over a year.

When the bank rejected his complaint, Mr N asked us to look into it.

complaint upheld

When we looked at the evidence, we noted that Mr N had followed the repayment plan for two consecutive six-month terms. At the beginning of each of these terms, the debt-management charity had asked Mr N for his income and expenditure details - and passed them on to the bank on his behalf.

We could see that something had gone wrong when the time came for Mr N to agree a third term. We noted that the bank had been in touch with the debt-management charity towards the end of the second term of the plan - but the bank didn't appear to have received a response. So the bank had written directly to Mr N. The letter asked him for some information about his income and expenditure - but it didn't mention anything about the fact that the charity hadn't responded to the bank's requests for information.

Mr N told us he hadn't replied to the bank because he thought the charity was taking care of renewing his plan - as it had done twice before. We thought this had been a reasonable assumption. Mr N also pointed out that he had contacted the bank as soon as he had received a statement showing the increased interest payments.

We noted that the bank had offered to set up a new repayment plan for Mr N. But we didn't think it had acted fairly when it had refused to refund the additional interest he had paid when his repayment plan was stopped.

So we told the bank to put Mr N back in the position he would be in if his repayment plan hadn't been cancelled. This included refunding any charges applied to his account since the plan had ended, returning the interest rate to 6%, and refunding the additional interest Mr N had been paying.

We suggested to Mr N that he might want to keep in closer contact with the debt-management charity to prevent any future misunderstandings.

113/4
consumer complains that credit card was blocked while she was abroad - and that the bank wouldn't unblock it

A few months after Mrs H's husband died, she suggested to her son that they go on a once-in-a-lifetime holiday to the Far East. They researched their options and booked a three-month holiday.

A couple of weeks before they were due to travel, Mrs H was in the local branch of her bank - and she happened to mention her holiday to the person behind the counter. The member of staff pointed out that the bank had recently launched a new credit card with features that might be of interest to her - including preferential rates on overseas cash withdrawals. Mrs H filled in the relevant forms and the credit card account was opened for her.

A week before they were due to leave, Mrs H was in her local branch again to pick up some foreign currency. While she was there she told the same member of staff that her new credit card had arrived - and that she would be taking it with her to use on her travels.

Everything was fine with Mrs H's card at the beginning of her holiday. But two months later, her card was suddenly refused when she tried to pay for a meal. Mrs H phoned the helpline number on the back of her card and spoke to an adviser. When she asked why her card had been refused, the adviser told her that a block had been put on her card - because she hadn't made any payments since she had opened the account, and because they could see the card was being used abroad.

Mrs H asked the bank to sort out a direct debit straight away to sort the problem out. But she was dismayed when her card kept getting declined - in spite of her phoning the bank several times to find out what was going on. And because Mrs H hadn't taken any other cards - and only a limited amount of foreign currency - away with her, she had to rely on her son to pay for things once her cash had run out.

Mrs H was very upset. She felt even worse when she got home and opened her statements - and found that the bank had applied some charges that she didn't understand.

Mrs H decided to complain to the bank. She explained that she had promised her son that she would pay for the whole trip - and that she'd cover their spending money while they were away. She told the bank how awkward she had felt having to rely on him to pay for things when her card stopped working.

The bank apologised to Mrs H. It admitted it had made a mistake when it hadn't removed the block from her card. The bank offered to refund the charges and pay Mrs H £70 to cover the costs she had incurred phoning them from abroad - and to make up for the inconvenience she had experienced.

But Mrs H did not feel that the bank's offer went far enough - and decided to refer the matter to us.

complaint upheld

We talked through the situation with Mrs H. It was clear that the holiday had meant a lot to her - and to her son.

We could see from the evidence that Mrs H had asked the bank to set up a direct debit as soon as they'd told her there was a problem - and had done everything she could to try and get the block removed from her credit card. She had phoned the bank several times from three different countries.

Mrs H also told us that she had been so convinced that the credit card was the best - and safest - option for her to manage her money abroad that she had decided not to take any other payment cards with her.

The bank accepted that it hadn't explained to Mrs H how she should make the first payment on her card while she was abroad. But they pointed out that they had offered her some compensation to make up for the inconvenience - as well as refunding the charges and offering to cover the costs of the phone calls she had made while she was trying to sort things out.

We noted that, although it had been far from ideal, Mrs H had been able to rely on her son to help out.

Taking everything into account, we decided that the bank's offer needed to reflect both the inconvenience and the distress that Mrs H had experienced while she was abroad. So we told the bank to pay her an extra £70 compensation.

113/5
consumer in financial difficulty complains that bank registered default on her credit file - even though she had stuck to her repayment plan

In 2008, Mrs B lost her job. She knew she wouldn't be able to carry on making her minimum monthly payment on her credit card for much longer, so she got in touch with her credit card provider - her bank - and arranged a reduced payment plan. She made a reduced payment each month, and didn't think any more about it.

Four years later, Mrs B was thinking about remortgaging her house. She spoke to someone at her mortgage company to see what her options were. The adviser she spoke to told her that they couldn't offer her the lowest interest rate because of her credit rating.

Mrs B checked her credit report. She found that her bank had registered a default against her credit card account in 2009. She got in touch with the bank to ask what the default meant. She said that she hadn't missed a payment on her repayment plan - so she couldn't understand why the bank had registered anything on her file.

The bank said that it registered a default on her credit file in 2009 - because of a change in its policy. It said it had written to Mrs B at the time to let her know about the default notice. The bank accepted that Mrs B hadn't realised what had happened, and it offered to backdate the default to 2008 - when Mrs B's repayment plan had first started. That way, the default would be removed from her credit report sooner.

Mrs B didn't think this was fair - and she complained to the bank. When her complaint was turned down, she asked us to look into it.

complaint resolved

We asked Mrs B to give us an up-to-date copy of her credit report - so that we could check what information the bank had recorded on it.

We asked the bank to send us copies of all its correspondence with Mrs B. We noted that the bank had written to her in 2009 to let her know that she had defaulted on her agreement - and that the bank had registered a default on her credit file.

Mrs B had replied to the bank's letter, asking what the default notice meant, and pointing out that she was making her repayments each month. The bank had then written to Mrs B asking her to get in touch to discuss the situation. The bank's records showed that Mrs B hadn't replied.

We explained to Mrs B that although she hadn't missed a payment on her reduced payment plan, she had defaulted on the original agreement she had made when she first took out the credit card.

We could understand why Mrs B was upset. She hadn't missed a payment since she had started her repayment plan - and she obviously wanted to clear the balance on her card.

But we didn't agree that the bank had made a mistake when it had registered the default - and we decided that its offer to backdate the default was reasonable. Once we had explained the situation to Mrs B - and she had understood why the default had been registered in the first place - she decided not to take things any further.

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.