A recent advert for the Natwest Black Card states it charges an APR [1] 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 [2], and it can use all the cash as it can get.
But to qualify for a Natwest Black Card [3], 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:
[4]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 [5] – 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 [6] 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 [7] 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 [8].
Other moves are afoot to partially detoxify credit cards [9], 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!