Thread: Call for information from cancelled Egg card holders

I realise the cancellation of 161,000 Egg cards last year is old news, but I guess many, like myself, still have not paid off the outstanding balance yet.

I am almost there, but have been complaining to Egg about the very high interest rate they have been charging on the balance. This led me to look at the history of interest rates on the account and I found that they raised the interest rate significantly 1 month before cancelling the card. Coincidence?? Well, I spoke to a couple of other ex-card holders. Guess what??

I would be very interested in hearing from any CAG members who also had an Egg card cancelled - and whether there was an interest rate increase shortly before the card was cancelled.

If there is enough evidence that a policy of increasing the rates on cards they were about to cancel was in place, there may be a case for taking this matter to the OFT. The OFT don't deal with individual claims - but can act if an organisation has operated in a way that might unfairly affect a large number of consumers. There was talk at the time of an OFT investigation - but I never heard anymore on the subject.

Many thanks

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Thanks Martin

I've subscribed to a couple of other threads - the MBNA great interest rate swindle was an interesting discussion and very informative. With Egg, the OFT promised an investigation - I will contact them and see where they got to.

Regards

Hi Kat1979

...and many thanks for sharing your case on this thread. I understand and empatise with your position entirely. Whilst I may have mearly cleared my Egg balance, I have several other debts that will take considerably longer to sort out.

Regarding the late payment penalties and Egg, I wrote and asked for these to be refunded. So far they have offered to pay the differnece between the £20 they were charging and the £16 they now charge - but no interest. I have declined their offer! I agree entirely with Mistermind - stick at it. There are many other threads here that I have found really helpful.

As Mistermind says, however, on the issue of interest rates "there is no past form". Mistermind is also correct in pointing out the recent government statements on this issue raise some hope and certainly, applying to the fos (althouth this is not quick!) sounds a very good idea.

I'm still interested, however, in seeing how big this issue is. Here's the possible scenario. A credit card company has built up a portfolio of unprofitable (because the the holders don't use the card) and risky (because the holders are overextended) accounts. They decide to clear out this part of their portfolio - Fine, that's their call. Some would even applaud their action saying this is prudent and responsible partfolio management.
The trouble is - this portfolio isn't worth much - the unprofitable part is unprofitable and the sub-prime part (you and me!) may not be able to pay the balance off - we might even default. So what they might decide to do is increase the interest rate on the whole portfolio - say to a healthy 26.9% APR. There's no risk to them doing this. If the account holders don't like it, what can they do? Cancel the account - that was the whole point of the exercise. The unprofitable bit will just pay off in ful. They would know, however, the sub-prime bit won't be able to pay the debt off - so the increased interest rate is a nice way of revaluing the portfolio.
However, this pratice may be considered unfair under the Unfair terms and conditions legislation. It may be OK to reassess an individual's crfedit risk and argue the case that an increased interest rate is appropriate (I'm sure there will be much more to come on this argument!) - But a collective interest rate hike seems more difficult to justify - particularly if you are withdrawing the services offered!

The OFT are not set up to look at individual cases - that's the job of the Financial Ombudsman Service (FOS) - but the OFT (under a section of the legislation referred to as Section 8) can take action if the organisation concerned has acted in a way which affects the interets of a large number of consumers. If it could be show a credit card company acted in the way I have described then there would be a string case for teh OFT to act.

Sorry for the length of this posting - but I wanted to explain why I'm still interested in hearing from other Egg customers - not that I'm saying this is what Egg did of course - that would be libelous!

Good luck, by the way... happy to help if I can

Thanks bathgatebuyer!

This certainly seems to be the pattern.... Any more CAGer's who can help with further examples??

How do you know they didn't increase the continuing customers' rates at the same time?

I have held an Egg Card for many years, which has never been cancelled. I have never paid any interest on the balance either, always paying off in full every month.

I logged onto my accounts but couldn't find historic interest rates. Mine is currently 10.9% variable.

I would be happy to try and find out my rates if it was useful to anybody.

Hi Militantconsumer

Many thanks for your posting and offer of help. You raise a very good point about interest rates for continuing customers. However, I suspect at 10.9% APR you would probably have noticed a suddden increase of an extra 5% and at least been a bit worried about it even if, as you say, you pay the balance in full every month.

The limited evidence I have so far seems pretty consistent. ALL Egg customers that have contacted me had a 5% rate increase in December 2007 prior to a letter cancelling their cards in January - including myself. I suspect all of us were in the "sub-prime" part of the Egg customer portfolio. i.e. we had all made late payments at some stage and our credit ratings are poor. (I don't know this - so apologies for anyone contacting me where this is not true!).

I would be very interested to hear from any Egg customers who had their card cancelled and did not fall into this category. There was a strong suggestion, at the time, that Egg were clearing out unprofitable cards as well as "risky" accounts.

There is nothing intrinsically wrong (legally, at least - morally, perhaps!) with Egg operating a "risk-based pricing policy". Most card companies do so i.e. the less money you have and the greater your need for credit - the higher the charge for that credit will be. However, there is an interesting debate to be had (probably in Court) as to whether the actions of card companies operating such a policy have been "fair" under the Unfair terms and conditions Regulations (UTCCR's).

If you are a high risk card customer, you are penalised in two ways - firstly by penalty charges for late payment, overlimit balances or returned (bounced) payments. These penalties are allowed because, basically, you breached the contract. The charges, however, MUST be proportionate to the actual costs incurred by the card company resulting from the breach. This, of course, is the argument currently going on in Court over bank charges.

With credit cards, the Office of Fair Trading (OFT) investigated the charges back in 2006. Their conclusion was that “On the analysis we have undertaken we have concluded that generally credit card default fees have been set at a significantly higher level than is fair for the purposes of the UTCCRs.”. The OFT went further to suggest that a charge of £12 might be a "guideline" figure for such charges above which there may be a case for complaint. Most companies have, therefore, redued their charges to this level (except Egg who reduced its charges from £20 to £16!).

However, the second way high risk customers are penalised is through increased interest rates ("risk-based pricing"). i.e. if you default - or there is a risk you might default, the card company can cover its costs by increasing the interest rate on your account.

But here comes the rub! The OFT is very clear in its guidelines and cautions card companies against "double recovery". In section 3.18 of the 2006 guidelinesit points to benefits "arising out of operating a risk-based pricing policy". It goes on to say that "A credit card company should ensure that there is no duplication between such benefits and the money recovered by way of a default charge." i.e. in assessig the "fairness" of default charges the OFT believes the Courts should take into account other measures - such a rate increases for high risk customers.

The question is really whether Egg acted "fairly" in applying a 5% rate increase to customers - knowing they were about to cancel their cards. I suspect Court action to prove the case one way or another would be very long and difficult. Hence a referral back to the OFT to investigate might be the only option here for collective action.

Regards



PS - Still would like to hear from other Egg customers!

I called Egg to find out my historic interest rates. Here they are:-

June 2000 - opened account - 16.9%
September 2006 - rate changed to 9.9%
March 2007 - rate changed to 10.9%

As I have never made a late payment, gone over my limit or had any other penalty charges, and I was NOT one of the customers whose account was closed, this would suggest that Egg Card chose to raise the interest rates for the so-called "sub-prime" customers but not for the customers they wanted to keep.

Well, if you can believe what Egg told me this morning, you now have 8 years and six months' worth of fluctuating rates for a "normal" customer.

Nothing to stop somebody making a complaint to the fos about an unfair interest rate rise on their own account.