Barclaycard rapped for promoting credit card cash withdrawals
Barclaycard has been accused of being “grossly irresponsible” for encouraging customers to use their credit cards to take out cash.
The lender has written to thousands of customers informing them that their cash withdrawal limits have been raised and suggesting they use their credit cards to withdraw cash and pay for everyday items.
However, using a credit card to withdraw cash is one of the most expensive ways to borrow as interest rates for cash withdrawals can be as much as 27.9%. In addition, interest is charged from the day the money is taken out unlike card purchases when borrowers get up to 56 days before interest charges kick in.
Barclaycard also charges a 2.5% ATM fee with a minimum charge of £2.50.
Chris Tapp, director at debt advice charity Credit Action, said: “When we are going through one of the worst periods of financial turmoil for many years, when people are really starting to struggle with their bills, this type of letter is grossly irresponsible.
“Making cash withdrawals appear more normal in this way, like an everyday activity, is extremely bad advice. It may be good for the company but it is dreadful for the consumer.”
Barclaycard denies that it is encouraging people to make extra cash withdrawals and says the campaign targets low risk customers who it believes might occasionally take out cash on competitors’ credit cards.
“The objective of the campaign is to persuade those customers to use their Barclaycard on those occasions rather than to increase the number of cash withdrawals made,” a spokesperson said. “Barclaycard knows that the ability to withdraw cash on a credit card, occasionally and appropriately, is a facility which customers value and appreciate.
"The company believes that all its services should be priced according to the risk and that it is unfair to charge all customers the same rates for withdrawing cash.”
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.