Credit cards are BIG money spinners for the banks and all the other issuers. Let’s look at some of the history, the providers and why the banks love them and how they can be seriously bad for your financial wealth.
The worlds first credit card was Diners’ Club way back in 1951, although initially, it was simply a charge card. It took a whole decade to become a fully fledge credit card. Some say in that case, the honour should go to American Express, with the launch of its travel and entertainment card in 1958.
Now as a society, we couldn’t live without them. Every single bank issues them and plus of course, you have some real favourites in there too. Here are some past and present – Egg, Capital One, Barclaycard, MBNA, Monument, Vanquis, Thomas Cook, AA, Morgan Stanley, Marbles, Goldfish, Shell, Beneficial and of course AMEX.
Just as there are many names, there are just as many interest rates on offer, some as low as single figures for an APR, should you not pay your balance off in full each month and others that could quite easily reach 30% plus territory. Especially the ones designed to “build up your credit score.”
But, if you were a bank and wanted to have some fun and make serious money into the bargain, all you really needed to do, was add Payment Protection Insurance on your credit card offering. Now you could make some really serious money!
What is the Cost?
So if you had it, or maybe you still do, what about the cost? Well back in the day, the cost was typically 65p to 75p per £100 of balance cover. More recently this has been higher and can be especially the case on “subprime cards.” So simple enough and the PPI, would cover your minimum balance payment each month and in some cases even up to 5% of the balance figure. Death cover too might also be included.
All sounds great, but there was just one tiny wee snag that you probably weren’t told about. Those premiums might have appeared reasonable enough, BUT, if you were carrying a debit balance, remember the monthly premium was added to that too, so you actually paid interest on that each month as well.
Like an example? – okay, here you go. Well, let’s say you had a £10k balance and the cost of the PPI was 75p per £100 of cover – that would set you back a handsome £75 per month, then, of course, there would be the interest cost on top. On a 20% credit card rate, This would sting you another £1.50 per month.
Let’s be generous and say the PPI protected 5% of the balance – so, in this example, £76.50 gives you £500 of cover. Reasonable? Good value for money? Well, no is the short answer. Like personal loans, you had a deferred period in which you couldn’t claim. Normally this would be 31 or 61 days. Thereafter, you would normally be covered for a full 12 months. However if you compare it to a stand-alone Accident, Sickness and Redundancy Policy, then immediately you can measure to some degree, the profit for the card issuer
Historically, ASU cover as a stand-alone policy. That is to say, paid monthly from your account as a separate payment, might have cost £6-£7 per £100 of monthly cover. So in the above example, taking even the higher figure, this would have cost £35. So a massive 100% plus, more expensive – no wonder the bank tried to sell you a shiny new credit card, every single time you walked in to the branch, or why a Barclaycard rep seemed ready to pounce on you, every time you visited an airport.
Luckily at Beat the Banks, we know how it worked and how the rules should have been applied, every single time you were sold a credit card with PPI, but simply weren’t. All our Claims Experts are former bank lending managers and as a company, we have literally hundreds of years of banking, insurance and legal experience.
Alliance & Leicester fined £7 million
In October 2008, Alliance & Leicester now owned by Santander received a then-record fine of £7 million for mis-selling PPI.
Santander Buy Alliance & Leicester
In October 2008 Santander took over Alliance & Leicester, just before then-record record fine for mis-selling PPI.
Time is running out to claim against Santander
All PPI claims need to be registered by August 2019, if you were mis-sold PPI by Santander you need to act now.
Santander Buy Abbey National
In 2004 Santander bought Abbey National who continued to mis-sell mortgage protection known as Paymentcare