Credit cards: new UK rules could mean end of O% interest deals

Online-only savings accounts offered by big banks could become an endangered species, and it might be curtains for some popular 0% interest credit card deals. However, there could be a boost for bank branches and those customers resisting the push to go digital.

These are just a few of the possible outcomes from a big shake-up of UK financial services that takes effect from 31 July.

The new “consumer duty” regime being brought in by the City watchdog, the Financial Conduct Authority (FCA), is all about ensuring that financial firms – including banks and building societies, insurers and investment companies – are focused on providing “good outcomes” for customers and preventing “foreseeable harm”.

That should mean things such as giving fair pricing to all customers, acting on rip-off charges, and making it easier to cancel or switch products.

While some might be sceptical about whether this new regime will really make a difference, financial firms are making changes to ensure they are complying with the tougher rules. For example, this week Santander announced changes to some of its savings accounts. Its eSaver and eIsa accounts have been renamed Easy Access Saver and Easy Access Isa and can now be administered via all channels: online, in a branch or via telephone. Previously these two accounts were online-only.

It is understood some banks take the view that it is not a “good outcome” for customers if they are only allowed to access an account online when there are other channels, such as bank branches or call centres, available.

Andrea Melville, Santander’s director of current accounts, savings and business banking, says it continuously reviews its products “to ensure they are delivering maximum value for our customers and are in line with the new consumer duty principles”.

Other high street banks may follow suit and open up their online-only accounts to non-digital customers. However, it is too early to say whether the price of this increased flexibility may be lower interest rates.

One industry insider says that until now it has been all about “banks trying to push people to go digital”, whereas moves such as this, triggered by the new regime, are “pulling back from that”.

Meanwhile, credit cards offering interest-free deals on balance transfers and purchases have long been popular and have helped some people save hundreds, or even thousands, of pounds. But if they do not charge a fee, then all the income is coming from people who do not pay off the balance or miss a payment.

The FCA makes it clear that firms “should not be relying on profits derived from bad customer outcomes”, says James Daley, the managing director of Fairer Finance, the consumer group and ratings provider. He adds: “For some products, like 0% credit cards with no fees, these new rules pose an existential challenge.”

Daley says lenders know that a proportion of customers who take out these cards will either miss a payment and lose their promotional offer as a result, or fail to pay off the balance at the end of the 0% term and be unable to refinance the debt. “The question is – is there any way they can predict which customers will be the profitable ones?”

He adds that when it comes to punishing customers who miss a payment by stripping them of their 0% deal, “I can’t see how this would meet the new consumer duty requirements either”.​