The future of 0% credit cards hanging in the balance?
Despite Nationwideís unveiling of their attractive new offering, and forecasts that many more are set to follow suit, RBS have bucked the trend and announced that they and their subsidiary NatWest will stop issuing balance transfer cards which have 0% rates attached to them.
RBSís chief executive said the bank wanted to stop "trapping people in debts they cannot afford".
Balance transfer cards have been utilised heavily in recent times by anyone who has a relatively high level of unsecured debt, as a mechanism to retake control of their financial situations.
Essentially, users of the cards can transfer their unsecured debt from other creditors into the 0% balance transfer accounts, and then have interest frozen on that amount until the cardís offer period comes to an end. The only financial obligation that must be met is the balance transfer fee itself, which usually does not amount to anymore than £500 for the largest balances.
Last week, Nationwide Building Society unveiled their latest balance transfer card that astonishingly charges just 0.75% as a balance transfer fee, and gives users 0% interest on their balances for a total of 26 months.
A number of market analysts have forecasted that other providers will follow suit with Nationwide, and beginning marketing their product to concentrate on balance transfer fees, rather than the duration of the 0% period, which is currently the predominant selling point.
However, RBS have instead chosen to take an altogether different stance towards 0% accounts, and have unveiled their replacement Clear Rate Platinum Credit Card which has a 6.9% interest rate attached to all transferred balances. The same rate is applied to purchases made with the card, though this could rise depending on the nature of the applicantís credit rating. RBS have indicated that the move is to encourage people to pay off their debt, rather than staying in it till the end of the 0% period and then simply moving to another provider with a new deal.
The Financial Conduct Authority (FCA) are currently undertaking an investigation of introductory and headline offers on the market, with critics of the deals citing that they are simply encouraging people to sign up for high levels of future debt through the promotion of highly attractive headline rates.
The FCA have previously said that many people fall into debt or substantiate their financial problems as they are unaware that the introductory deals revert to a far higher rate once the deal comes to an end, and are currently looking into whether they still have a place in a secure and reliable credit card market.
Others have argued that the cards simply encourage people to stay in debt, as the 0% offers run for such a long period, and the balances can simply be moved to a new account once the initial deal expires.
David Black of Consumer Intelligence said: "Many new credit card accounts are opened because of the introductory deals on offer, with some consumers opting for 0pc deals and others concentrating on the rewards.
"This inevitably means that consumers with good credit ratings have a real incentive to chop and change their credit cards on a regular basis. RBS's announcement that it's going to stop offering 0pc teaser rates is a brave move, now it's a question of whether other providers follow suit."
The converse nature of Nationwide and RBSís conduct suggest that the Balance transfer card market is currently at a crossroads in which it could go in two different directions; either moving towards heavier promotion of transfer feeís and cheaper rates, or a more hard-line stance of removing the 0% rate altogether and functioning as an assistive measure, rather than a device that enables people to put off their debt problems for an extended period.
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