£20,000 credit card 'bribes'

CREDIT card firms are under fire for trying to hold on to customers with £20,000 interest-free loans. MPs and consumer groups have condemned the huge advances as 'reckless and irresponsible'.

The nation's credit card debt is nearing £60bn and concerns have been heightened by the recent suicides of two men who could not pay back their massive bills.

Over the last few months, banks have been targeting individual customers with the offers, mainly through mailshots. The intention is to keep the customer loyal to their particular card.

With hundreds of cards on the market, many people have switched around to take advantage of initial low interest rates. They have become known as 'card tarts'. By offering the interest-free cash, credit card firms hope to curb this trend.

Providers offering large interest-free loans for nine months include MBNA, Abbey, Alliance & Leicester and Virgin (all of whose cards are issued through MBNA), and Egg, the internet bank owned by Prudential. The Mint card, owned by Royal Bank of Scotland, offers an eight-month interest-free period.

Paul Schofield, head of personal finance for the consumer advisory service uswitch.com, said: 'People will get sucked in by this. People who take the offer have to be incredibly disciplined about paying it back, but the problem is, they won't necessarily be.'

The amount offered is the equivalent of the customer's credit limit and is usually transferred to their current account.

The cash can then be withdrawn and repaid when the interest-free period ends. Customers who cannot repay within that time will face repayments at high interest rates of around 15%.

MBNA cardholder Caroline Marcus, a teacher from London, was one of the customers offered a £20,000 advance. The average teacher's salary in the capital is £29,000.

It has also emerged that a disabled woman who has never worked was allowed to run up credit card debts of £14,000 in two years.

Natasha Gollop, 25, a cerebral palsy sufferer from Worksop, Nottinghamshire, has an income of only £123 a week but ran up the debt after getting credit cards from four companies.

Increasing credit card debt is proving to be a goldmine for banks, which are on course to generate a second successive year of record profits. Bank chiefs will be savaged during a public hearing of the Treasury Select Committee tomorrow.

They have already snubbed demands from the Committee to reveal how much money they make from rip-off penalty charges imposed on credit card customers.

The Committee intends to grill them on the massive interest-free cash advances.

Committee member John Mann said: 'They will be challenged about this. They're trying every scam possible to hook people into credit. It's an industry which has run out of control. These companies are reckless. The arrogance of some of the credit card bosses is beyond belief.'

Card providers insist there are rigorous checks on potential borrowers and the service is not available to everyone.

But Mike Naylor, principal researcher for the consumer magazine Which?, said: 'Our concern is that the banks are not making proper credit checks on customers.

'Credit reference systems don't always offer full information so a bank will not do a full check and won't look at what other credit cards you have and what your situation is.

'This offer is irresponsible. The danger is people get the cash in their account and spend it but carry on using their credit card for purchases.'

Some shrewd customers have transferred the money to mortgage accounts to offset the interest charged before paying back the money.

But there are an increasing number of tragic cases where customers have been unable to resist the temptation to run up debts they have no hope of repaying.

Forklift driver Dereck Rawson, 51, was in despair after amassing debts of almost £100,000 - most of it on 16 credit cards. The bulk of it involved interest payments and penalty charges.

In May, he wrote a suicide note, posted it to his sister and then hanged himself at his home in Yaxley, Cambridgeshire.

His problems began 15 years ago when he found himself owing £ 10,000 through negative equity after the sale of his home and collapse of his marriage.

He got more and more credit cards even though he did not own his home and his take-home pay was only £340 a week.

The second recent suicide involved Stephen Lewis, 37, who earned £22,000 a year and lived with his wife and two children in Worksop.

By the time he died, he had 19 cards and was being hounded by telephone calls and letters from banks and building societies. He had debts of around £70,000.

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