With long 0% balance transfer deals, one strike, you're out

By Marianne Curphey

The balance transfer "war" continues in 2016, with promotional 0% interest deals lasting longer and longer -- some longer than three years. However, even if you are selected as one of the lucky customers who get the maximum deal, you're not off the hook yet. You have to abide by your issuer's rules, or you could cut short your interest-free time.

According to a January 2016 study from the Co-operative Bank, one in four people who have taken out a 0% balance transfer credit card have had their promotional offer withdrawn early because they didn't stick to the terms and conditions of the deal.

"Many cardholders only keep the promotional offer for a matter of months, despite paying an initial fee for the benefit," Matthew Carter, products and marketing director at the Co-operative Bank, said in an emailed response to questions.promotional-deal-removed

On average, customers who made a mistake lost their deal just four
months after getting their new card. More than a fifth of those surveyed didn't even make it past the first month. The Co-op Bank estimates UK cardholders have paid up to £1.2 billion annually in interest due to their cards reverting to their standard APRs.

The study found that relatively small offences -- such making late payment, missing a payment or exceeding the credit limit -- could result in penalisation.

"Promotional rates and offers can be withdrawn, as set out in the card's terms and conditions," a spokeswoman for the UK Cards Association said. "If customers feel they have been unfairly treated, in the first instance they should complain to the firm, who will have a written procedure for handling complaints."

Consumer advocates: the penalty is too high
More than a third of cardholders surveyed in the Co-op Bank study who have, or have had, a balance transfer card were not aware that the card provider could remove the promotional rate if they missed a payment, while a third were unaware it could be removed if they exceeded their credit limit.

James Daley, managing director of Fairer Finance, says it's common for companies to withdraw these deal for minor offences and that the penalties were too high.

"With balance transfer periods extending for well over three years, it is an enormous penalty to have the entire offer withdrawn just for missing a single payment or a couple of payments," he says.

"Our customers told us that while they expect to be charged a small fee, what they don't like is disproportionate penalties that unfairly hit them financially," Carter, of the Co-op Bank, said.

Daley says the penalties are "not in the spirit of regulations that were brought in 10 years ago by the Office of Fair Trading (OFT) to cap late payment charges".

"Now card providers have found a different way on cashing in on their customers' mistakes," says Daley.

Daley believes issuers need to do more to make consumers aware of the penalties that come with negating the terms and conditions of long 0% interest promotions.

"Ideally, card providers should have the information when you looking at the deal in the initial stages, and then again when have finished the purchase and are accepted for the card," Daley says. He points to Halifax and Bank of Scotland as examples of card providers who make charges clear. "Lots of other companies hide the charges in the small print or in the terms and conditions."

Bottom line: balance transfer promotions take discipline.
"Whether or not these types of card suit you depends a lot on how organised you are," says Jasmine Birtles, founder of Moneymagpie. "It's great if you ... keep on top of repayments and stick to the terms and conditions. It can be a costly mistake to miss a payment, though, which is why cards like these are best suited to people who can be disciplined with their money."

She recommends keeping the end date of the 0% interest offer written in a calendar or diary so that you don't forget about it.

"Have a repayment plan in place for the debt," she says. "Card providers will put you onto their standard variable rate when the deal ends, and this can be quite high."

See related: How do banks benefit from long balance transfer offers?, Can you benefit from a 'double-duty' 0% credit card?

Published: 18 February 2016