22/03/03

Research issued today by Egg, the World’s largest pure online bank, exposes bad practice and self-interest which lies at the heart of the UK financial services industry and ultimately results in consumers being hoodwinked by advertised deals which are only offered to a handful of applicants.

Egg commissioned 200 NOP researchers to apply to four leading UK credit card and personal loan providers who offer products with rates dependant upon how much of a risk they perceive the applicant to be. These so-called ‘risk-based’ products are becoming increasingly common in the UK and are usually advertised displaying their lowest rate as a ‘from rate’.

So, for instance, Barclaycard are currently advertising their Classic Visa ‘… from 11.9% APR’. This rate however is only available to those who meet certain criteria and applicants only discover what rate they will pay after they have applied.

NOP researchers (fifty for each provider) applied to each provider during January and February 2003 to see what rate they would be offered. Egg also asked them to report whether the providers made it clear up front that the offered rate was dependent on their credit score with a staggering 71% claiming they were not.

The Consumer Credit Act requires lenders who price for risk to display their ‘typical rate’ more prominently than any other rate (i.e. the rate that more customers are on that any other rate). However, Egg’s research shows that often lenders display their lowest rate more prominently and in all cases the NOP Mystery Shop revealed that the average interest rate offered (i.e. the median rate) was higher than their advertised ‘typical’ rate.

According to Experian, the UK’s largest credit agency, ‘shopping around’ for the best credit deal should not affect a consumer’s record, as a search should only be conducted in response to an actual application for credit. However, the fact that risk-based products can only be compared after a search, means that in order to price shop, consumer need to go through the whole scoring procedure. Multiple searches on a file may be potentially misleading.

Provided by Egg