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Interest Rate Increases - Can they be Penalties?

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  • Interest Rate Increases - Can they be Penalties?

    Hi

    I'm new to Legal Beagles and haven't had time to read everything yet - so please forgive me if I cover old ground.

    I'm concerned about the excessiove interest rates I'm being charged by Egg. I was one of the 161,000 cards they withdrew earlier in the year. I have been pursuing a claim for repayment of penalty charges - they have, so far offered to repay the difference between the £20 they used to charge and the £16 they now charge - but no interest. I have declined. But it got me a bit angry and I started looking more closely at the interest rate being charged.

    I currently pay a massive 26.9% APR - far above the original agreement. So a few months ago I phoned and asked why it was so high. The person I spoke to at the time (unfortunately I didn't take their name) said it was because I had been overlimit and had paid late on a few occasions. They also said if payments were made regularly over 6 months Egg might revew and reduce the interest rate.

    So I called again and pointed out I had paid on time and well over the minimum required for at least 6 months - could they now reduce the interest rate. They said no. So I asked again why it was so high? This time they said it was "a complex issue" but it was a combination of my credit rating and "the previous management of the account". I asked specifically if making a late payment would affect the interest rate charged. They had obviously been briefed on this question and vehemently denied they had ever said that. But later the Team Leader admitted it was "one of the factors" they took into account.

    If a bank (like Egg) were to raise the interest rate on a credit card as a result of the customer making a late payment then, presumably, there would be a case that this was, in fact, a "penalty" charge and potentially unlawful under the unfair terms and conditions legislation - as per the arguments going on in Court re the bank charges??

    The challenge would be (I guess) proving this to be the case??

    Of course the Bank would undoubtedly argue that interest rates are "core terms" of the credit agreement and therefore not subject to discussion under UTCCR. It is clear, however, from OFT guidelines that this is NOT the case and that terms affecting the variation of interest rates COULD be considered as unfair terms....

    Here's another possibility - what if a bank - wanting to reduce its risk, reviewed all its accounts and decided to terminate all credit cards where the customer had a credit rating below a certain level. But, before doing so they increased the interest rate on all those accounts before writing to them to cancel the agreement?

    Of course, it would be libelous of me to suggest Egg would ever consider doing such a thing and I'm sure the rate increase I had in December before receiving the letter of termination in January was pure coincidence. But I was wondering if there were any experiences other members had relating to interest rate hikes?

  • #2
    Re: Interest Rate Increases - Can they be Penalties?

    Hi Chandler, welcome to Beagles

    A very interesting point you raise, the first thing you would need to do is actually get Egg to put that in writing, someone saying it over the phone at a call centre could not be used in any argument.

    As for your charges claim, the OFT set a cap at £12, the maximum amount they would consider before investigating. If Egg are charging £16 then they are fair game to the OFT[have now been informed that £16 is the cap for Egg]. Keep pressuring Egg for the whole of the £20 charge back, you will get it refunded. Also there are many threads on here as to what choice of rate and type of interest to reclaim. Read them all and make your choice.

    I have recently lost the 0% introductory rate on two of my cards, but not through mismanagement, through the offer period expiring. Your T&C`s will show (or should)that the rate is variable. Have you just finished an introductory period or have they just hiked the rate up for no reason?
    Last edited by Tools; 22nd November 2008, 12:39:PM.
    Any opinions I give are my own. Any advice I give is without liability. If you are unsure, please seek qualified legal advice.

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    • #3
      Re: Interest Rate Increases - Can they be Penalties?

      Egg were given a maximum £16 cap, due to the way their business operates and related costs by the OFT, when everyone else was capped at £12. However it is now owned by CitiFinancial, although still under the egg brand.

      The criteria for a 0% is very strict and the interest rate charged is dependent on a number of factors, not jut going over the limit. I'm sure it is not something we will ever know without a court order.

      I'm not sure that it could be classed as a penalty charge as there is the choice to pay the balance off and pay no interest, but others ma be able to analyse and apply the approriate legislation better than i can.

      Comment


      • #4
        Re: Interest Rate Increases - Can they be Penalties?

        How bizarre! This is something that has been rumbling on in the back of my mind for a few months now and have been meaning to address.

        My argument, as Chandler's, is that, OK, you might start off with a 0% and you will be told what it will switch to at end of the 0% term. Fine ... no problem there.

        However, the more problems you have with payments (whatever they may be) cause you to find yourself deeper in debt due to the interest rate hikes due to the very problems, thereby compounding the situation and in many cases causing the creditor to default.

        My argument (and I believe this may be Chandler's too) is that can these hiked-up ever-increasing interest rates (some of mine are now in excess of 30%!) be argued against on the basis that they were not individually negotiated?

        After all, what can stop these CC companies even putting the rate up to 100% if they choose to??

        Any expert comments here would be very welcome.

        jax

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        • #5
          Re: Interest Rate Increases - Can they be Penalties?

          The key thing here, as Tools has suggested. Would be to try to get something in writing from them.

          I would like to suggest that you write to them and ask them to explain to you in simple terms why the interest rate on your credit cad has increased and when it is likley to drop back down again. IE try to get them to state in writing what they have told you verbally. Do not link this request to anything you are doing with Egg wrt reclaiming your charges otherwise they will probably catch on to what you are trying to do. Let us know if you need any help in drafting or checking the letter before you send it off.

          If you can get them to provide a letter that links the increase in your interest rate directly to the late payment or overlimit contract breaches then you could certainly argue that the increased portion of the interest rate is as much of an unlawful penalty as the actual charges themselves. The amount of this additional charge would be failry easy to calculate and could then be added to yoru claim.

          To get your charges repaid, with the additiona "penalty" interest plus compensatory interest on top, you are going to have to file a claim with your local County Court. Egg just wont take you seriously until you do this.

          Exactly what stage are you at in the reclaiming process? Have you done all this yourself or have you been doing this on another site. It would be useful if you could scan and post up copies of the communciations you have had with Egg to date so that we can assist you with your claim, fully aware of what you have achieved so far.

          I very much appreciate the point you have raised and would like to help you follow this one through.

          Budgie

          Comment


          • #6
            Re: Interest Rate Increases - Can they be Penalties?

            Wow!! Such swift and useful responses!!

            Firstly, many, many thanks to everyone who responded to my initial posting... Clearly the issue of interest rate variation seems to be exercising more minds than just mine...

            I should be clear about my own situation with Egg. It was never a 0% interest offer - I had the card many years (at a reasonable interest rate) - they then started to increase the interest rate culminating in a final hike to 26.9% APR just before the cancellation of the agreement in January of this year - part of the batch of 161,000 cards they cancelled....

            Setting Egg aside, I think there are two issues here:

            (a) can a hike in interest rate as a result of late payment be construed as a late payment penalty charge - and therefore be assessed as "unfair" as it would add to any other penalty, making the total disproportionate to the actual costs incurred by the CC Company as a result of the customers breach of contract. There is some evidence to suggest that credit card companies - having been forced by the OFT to reduce their penalty charges to £12 (or £16 in the case of Egg) - may be "topping up" the penalty in this way.

            Recognising that the interest rate increase is not just a one off penalty but rather an ongoing charge against the full balance of the account, it is possible that the OFT action, rather than making things better for the consumer, may have made things worse! (notwithstanding those of us who have had penalty charges refunded)

            (b) are the terms of the agreement that enable the CC Company to increase the interest rate themselves unfair? Clearly, the CC companies point to the agreement terms and argue that the customer has entered into the agreement knowing full well that the CC company has the right to vary the interest. This, they would argue, is a "core" term of the contract and, therefore, cannot be construed as "unfair" under the provisions of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR's)...

            However, there would appear to be a strong legal argument that, if the CC Company did not make it clear in the agreement that the interest rate would be increased as a result of certain actions by the customer, that the terms could be construed as unfair and hence unenforceable.

            Schedule 2 to the UTCCRs give some indication of terms which may be regarded as unfair. This specifically states that a term may be unfair if it has the object or effect of "enabling the supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract"....

            I guess I should check my Egg CC agreement???

            Whilst I value the advice given of writing to Egg asking them for an explanation as to why the interest rate is as it is, I suspect they would spot the incoming missile behind the letter clearly on their radar! Perhaps an SAR under the Data Protection Act might be more fruitful....

            I would like to keep this discussion going... I'm by no means an expert and views would be greatly appreciated. I have lots of other cards with exorbitant interest rates!!

            Chandler99

            Comment


            • #7
              Re: Interest Rate Increases - Can they be Penalties?

              unfortunately, I have experience the same fault statement from my cc representors, if you paid for 1 year without being late, we will reduce your intrest rates. I when alone with that from 1998 thur 2006. Now my husband and I are out of work. So, so far one has taking us to court and sue us, my guess is the others will follow. Late fee and intrest rates are growing so high.
              Can some one give some good advices.

              Comment


              • #8
                Re: Interest Rate Increases - Can they be Penalties?

                Hi Btbensso and welcome to Beagles for you to get the help and advice you need you should start a thread in the Debt section of the forum.

                And don't worry we are a friendly bunch here and will do what we can to help
                Member of the Beagles £2 coin and small change savers clubs, both based in the Debt Forum:11:

                Comment


                • #9
                  Re: Interest Rate Increases - Can they be Penalties?

                  Chandler, yes the first step would be to check your original agreement to see what terms are included regarding interest rate variations and if any "triggers" or account behaviour would increase such a rate.

                  A SAR would also be a good idea as you suggest.
                  Any opinions I give are my own. Any advice I give is without liability. If you are unsure, please seek qualified legal advice.

                  IF WE HAVE HELPED YOU PLEASE CONSIDER UPGRADING TO VIP - click here

                  Comment


                  • #10
                    Re: Interest Rate Increases - Can they be Penalties?

                    Many thanks Tools....

                    I've been away on business - but will apply my full attention to the matter this week. I wonder if there's any way of finding other people who had their cards cancelled to find out if they expereinced a similar hike in interest rate before the card was cancelled???

                    Chandler99

                    Comment


                    • #11
                      Re: Interest Rate Increases - Can they be Penalties?

                      I saw this on TV earlier,

                      Read here Chandler Mandelson warns credit card companies over bad practice - Legal Beagles
                      Any opinions I give are my own. Any advice I give is without liability. If you are unsure, please seek qualified legal advice.

                      IF WE HAVE HELPED YOU PLEASE CONSIDER UPGRADING TO VIP - click here

                      Comment

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