Despite already owning plenty of plastic, thank you very much, I always seem to receive offers from various credit card providers through the post. Usually it’s just the same old Capital One offer, or a pre-approval letter from MBNA, but last week something entirely new and scary managed to sneak its way through my letterbox.

I’ve been invited to apply for a Vanquis Visa Card. There are no surprise charges, I’m told, it’s accepted wherever I see the VISA sign, the annual fee is £19, and the typical APR is a mere 58.6%

I’m not insulted by being included in their mass marketing by any means. I’m fine, since I have no desire to apply for the card whatsoever. But I’m appalled that somewhere in the UK is a company offering this card, and that they can be so legally egregious about what they are offering. For example, here are a couple of snippets from the letter:

With a Vanquis Visa card, there’s no need to worry about large repayments.

Vanquis Visa cards reward careful use. We’ll review your account from time to time - so by keeping to your credit limit and repaying on time, you’ll qualify to cut your interest rate again and again

OK, so that second one doesn’t look too bad on its own. Who wouldn’t want an ever decreasing interest rate? But when you think about who is being targeted for this card, and the initial typical APR, it doesn’t start to sound so good. Remember, this card is not targetted at those who’ve done a sound job of paying off previous loans or credit:

Don’t worry if you’ve been turned down elsewhere, had payment problems, or had a County Court Judgement issued against you in the past - we’ll still consider you.

So, if you’ve borrowed money in the past, but didn’t manage to pay it back on time, you’re the kind of customer we’re looking for.

But it’s not all bad. Provident Financial, who operate the Vanquis card, say on their web site that they offer:

A card with higher minimum repayments than other credit cards (5% of the outstanding balance, compared with an industry standard 2-3%) encouraging customers to pay off their balance more quickly

I haven’t crunched the numbers, but I have a feeling that if you had a lower minimum repayment, you could make the minimum each month, but still find yourself further in debt. Not good.

As well as offering this marvellous card, by the way, Provident Financial are one of the largest home credit providers in the UK. If you don’t know, home credit is basically a system whereby you borrow a smallish amount of money, get it hand-delivered to your door (in this case), and spend the rest of your life paying it off at huge interest rates. For example, borrow £500 from Provident Personal Credit, opt to pay it back over 55 weeks, and it will cost you a mere £825. That’s a typical APR of 177.0%, according to their loan calculator. Super, smashing, great, what a bargain.

But it should be pointed out that there is absolutely nothing wrong, legally, with this credit card. It looks as though the information they send out is at least as clear and open as that sent by any other card provider, and from my limited knowledge of the Consumer Credit Act, and the FSA, it’s perfectly compliant.

Not only that, but a search over at the Money Saving Expert Forum reveals plenty of goodwill towards this card. Among other things:

• Their customer service is praised for responding promptly and accurately
• It is pointed out that they are not the only company offering high interest rates. Although the Vanquis card is the highest I’ve found, some members of that forum have highlighted other cards heading up into the 30% APR range. Not only that, but several have reported that their initial APR has been set lower than they would have expected from the bumpf they were sent in the post
• The card might not be for everyone, and while it isn’t for me, there are certainly some people who can benefit from a card that will accept applicants with relatively low credit ratings. One of the posters at MSE, for example, was declared bankrupt several years ago, and has found it very difficult to obtain credit since then. He says it was “through no fault of his own”, and it would be churlish of me to question that statement.
• Credit limits on the card are set low, so there is a smaller risk of cardholders running up a big debt.

So it’s not all bad. But these are the views of some members of a money saving forum. There’s a good chance that people there are more likely to be able to use this sort of card to their advantage, rather than wanting, or feeling they need, to borrow on top of existing borrowing, and suddenly finding that they owe a debt that will be painful to pay off.

And no doubt Provident would argue that because they will be taking on high risk customers, the APR needs to be set high to offset that. From an economic perspective, that makes sense to me. It’s just that there seems to be something very wrong in the system somewhere that this is an OK thing to be offering. When they say they are targetting high risk customers, that implies that many of their cardholders will miss or default on payments, and mostly they won’t miss or default because they just forgot, or were a bit busy, and will pay the next day.

No, I worry that plenty of new Vanquis customers will find themselves targeted for this card, and be drawn in by the thought that they have a good chance of being accepted, telling themselves that they won’t put too much on the card, and won’t worry too much about high interest rates. (Would it be cynical of me to think that many people will be thinking that this card would be just the thing for the christmas shopping?) Instead, they would be far better off just not getting the card, and perhaps reading some advice instead. It will only lead to a world of pain for some.

Links

FSA Money Saving Expert Credit - in whose interest? (BBC)

Tags: vanquis, credit card, visa, money saving expert