A recent advert for the Natwest Black Card states it charges an APR of 51.8%.
Now, everyone knows that RBS Group, the megabank that owns Natwest, is a bit down on its luck. It’s 84% owned by the UK government after seeking shelter from oblivion during the credit crisis, and it can use all the cash as it can get.
But to qualify for a Natwest Black Card, you need to earn £75,000 a year.
Who – models, and footballers aside – could hold down such a job, and yet be dumb enough to pay an APR of 51.8% on a credit card?
Also, would the Government really allow ‘their’ bank to charge the sort of interest rates you’d normally associate with doorstep lending and a donkey head in the bed if you get behind on your repayments?
It didn’t seem likely, but here was the ad for the Natwest Black Card:
The Natwest Black Card ad. For once, the reality is less gloomy.
The Natwest Black Card has been available since 2002. When I first saw this ad, I wondered if I was really this far out of touch with the rest of the free-spending masses.
The murky maths behind the Natwest Black Card APR
It turns out things aren’t as bad as they look on the surface with the Natwest Black Card.
The ‘real’ annual interest rate on the card is 12.42%.
But Consumer Credit Act regulations insist that Natwest:
- Takes into account the (ahem!) £250 annual fee on the card.
- Calculates a typical APR using a £1,500 notional credit limit.
- Displays the resulting APR as prominently as the other copy in the advert.
It’s the low illustrative £1,500 credit limit coupled with the high annual fee that makes the card’s APR so high.
You’d have to be nuts to run up debts of £1,500 on your Natwest Black card and pay £250 a year to do so. The prominent APR makes it clear just how nutty.
In reality, a more typical customer would have a credit limit of at least £15,000, which Natwest calculates would equate to an APR of 16.8%.
True, I think you’d be nuts to pay £250 for the pleasure of getting into any debt – whether you repay it at 12%, 16% or that incredible near-52% APR rate.
Credit cards are the most expensive form of debt. In my book, they are to be used like debit cards – you should pay off the balance each month, and incur no interest charges. Save an emergency fund to cope with the unexpected, instead of using a credit card.
Many other people plainly do use their credit cards like an expensive piggybank, however, happily borrowing from the future to have stuff now.
Most of those who are also Natwest Black Card owners can at least put away their heart defibrillators. Their APR is likely not as bad as this advert seems to suggest.
The cost of banking to come
I can’t remember seeing an advert from a mainstream lender with an APR this shocking and prominent, so I presume it’s related to newer legislation – but I can’t find any relevant detail from a quick scan of the newer Consumer Credit Act of 2006.
Other moves are afoot to partially detoxify credit cards, but again these don’t seem to cover advertised APRs.
Whatever, Natwest states the prominence given to such a shocking APR is explicitly the result of ‘Consumer Credit Act regulations’, whether old or updated.
You could argue that consumer protection regulation is actually confusing matters here. Most people won’t see an APR of 51.8%, but you have to look into the detail about the Natwest Black Card to find out why.
But I disagree. By making banks and other financial service providers explain something nearer the worst-case scenario, the regulations may keep more people out of danger.
Also, by making the APR as prominent as the gushy waffle about sailing boats and personal assistants, we’re reminded that this credit card is a product we’re paying for, not a rich Uncle showering us with gifts.
Finally, thanks to those annoying campaigns to stop banks charging £20 fees to customers going overdrawn, those of us who’ve always paid our credit cards on time and who never go overdrawn will probably see an end to free banking soon.
All the major UK High Street banks are drawing up plans to charge us annual fees for current accounts. They want to make up for the revenue they’re increasingly unable to clawback from more hapless customers.
Free banking is seen as a natural right in the UK, but it’s normal to pay for a bank account in Europe and elsewhere. And that’s probably the shape of things to come here, too.
We might in future therefore see more adverts like this one for the Natwest Black Card with strangely high APRs, due to annual banking fees in the small print. Watch this space!
I get that you guys on the other side of the pond have different rules in terms of advertising….but who the hell approved this advertisement?! Who said, you know what, this is a great idea to get our name out there?! That “bloke” should be FIRED
.-= Evan on: Is Cell Phone Insurance Worth It? =-.
To give a fair comparison you’d have to compare the benefits with a similar service.
I could definitely do with a personal assistant 🙂 but I don’t earn at least £75,000.
It’s not just the Consumer Credit Act at work but also FSA rules on ‘Financial Promotions’.
Thomas, do you think you’d use the personal concierge service though? I suspect these things are overwhelmingly used by a small number of customers.
I have had something similar with an AmEx card and either been too sheepish to make demands or too pedestrian to have any to ask!
Agree re: the comparison, though my main point with this piece is just to explain the shockingly high APR, not to evaluate the card.
The annual travel insurance alone will justify some of the £250 fee, though you’re usually best off un-bundling such products (and what price do you put on that vague promise of a personal Jeeves? Clearly you only get so much concierge for £250 a year, ihttp://monevator.com/wp-admin/#comments-formt’s not a free secretary! 😉 )
Thanks for sharing your thoughts here and on some other post recently.
Of course the other APR scandal is on mortgages, where the upfront or tail fees are not included in the APR, or included in the APR over the 25/40 year length of the mortgage – not just that part with the incentive on it.
Most rational people will switch deals when the incentive ends.
It’s all front-loaded interest and should be shown as such – either by banning these up front or tail fees or by altering the APR calculation to reveal what is really happening
.-= Neil Wilson on: Where your taxes goes (and a bit more besides) =-.
For these sorts of cards the APR is totally irrelevant- they’re always going to be paid off 100% each month. This is a very different target market to a low APR credit card, enticing people to build up an expensive debt.
I agree that this is marketed to premium customers as a ‘charge card’, not a credit card so the interest rate is irrelevant. The benefits, similarly to the American Express charge card, are largely geared towards those who travel often or who entertain clients. I have the bank account with which this card is associated (though we have chosen a different credit card provider). It can save a lot of money when the need to travel for business arises and can pay for itself but as to earning (or saving) enough to qualify for the account, if you don’t do that kind of mileage it is simply a waste of money so it’s no loss.
Just a comment from someone who has one of these (but sadly, no longer available) – the details of the benefits are excellent when compared to others e.g. the travel insurance covers your family and up to five other people travelling with you and has no age restriction and you don’t have to declare pre-existing medical conditions! I don’t know of any other policy that does that. All the other benefits are also genuinely useful like Home Emergency, European Green Flag, Airport lounge card ( for me and my partner). Granted – you need to travel a lot to get the benefit which seems to be who this card was aimed at. The new Natwest Private Black Account has reduced insurance (have to declare pre-existing conditions where you didn’t have to before, and over 70’s pay extra, which wasn’t the case before). Some things, if you need them, are worth paying for.
@AP — Thanks for stopping by and updating us on this post. I wasn’t really against the card, it was more a discussion of the APR in the advertising, and whether it was useful or not. As you say, sometimes it’s worth paying up for benefits.
I do think it’s worthwhile ensuring you’ll not being hustled into a collection of benefits that are grossly over-priced compared to buying them individually (unless the time saving is worthwhile to you). From your experience, it sounds like this card got the balance right for you and no doubt some other customers.
I have one of these cards and travel a lot.
Good points:
The airport lounge access justifies the fee alone
The European Green Flag is very useful. Recently recovered from Autobahn with dead 4×4 pulling car on trailer after Nurburgring visit. One call to the concierge service found us on a recovery truck
If you transfer a card balance there are no sneaky 5% charges. Same applies to bank depot from the card.
Bad Points.
I live in Qatar. If I use the card overseas there is the usual poor exchange rate plus a Foreign transaction charge. This charge is very irritating when you consider that the target customer is likely to travel a lot. I often have to pay large hotel bills. The big credit limit is a comfort in this respect – for other purchases and cash I use either a GCC issued card or Caxton pre paid Global Traveler.
Thank you. Some very helpful information. Lloyds AVA account at £25 p.m does not restrict travel cover to 3 months stays, as does NWBC. But Lloyds AVA insurance is limited to those under 80. NWBC does not have this age restriction . NWBC no longer provides loyalty points, which negates using it regularly. And they both use AXA Assistance !
If you get a P.O. Credit Card, there are no foreign transaction charges ( a quite unjustified charge ) , and they offer a decent credit limit ( like £ 5000 ). I always pay by DD. It is absurd to run up CC debt.