Two Pennies Worth

Consumers shouldn't be punished for trying to find cheap credit deals

We must reform the system that punishes consumers who seek the best card and loan deals, says Sam Dunn. 

A novel way to buy a car

Pick a dealership you like the look of – perhaps it’s one you’ve used before – and run an eye over the models.

When you’ve decided which one you like, ask the salesman if he thinks you should be allowed to drive it or not.

To your dismay he says: “Sorry sir, the answer’s no; but have you thought about this more expensive make instead?”

Twisted, eh? But there’s more.

Unwilling to pay more for a vehicle you really don’t want and can’t afford, you decide to visit rival dealerships.

The same process happens again but each time you visit a new forecourt, the staff are fully armed with the knowledge of where you’ve been before – and the decisions the other dealerships have made.

You’re caught in a trap, entirely at the whim of profit-hungry companies.

The credit trap

My car analogy sounds like a pretty bizarre way to make a major financial commitment but unfortunately it’s one already in practice – when we apply for credit cards and loans.

Frankly, it’s a ludicrous system that would be funny if the consequences weren’t so severe. When you apply for a particular loan or credit card, the very act prompts a “search” entry to pop up on your credit file.

This has an immediate effect on your credit score: positive if you’re successful, negative if you’re turned down.

If it’s the latter, now the nasty part starts. Say you apply for a 0 per cent balance transfer card but your bank tells you that actually a 14 per cent interest card is the best you can get – understandably, you decline.

Yet your ability to then shop around for a cheaper card deal from a rival lender is compromised because of the very act of your first application – regardless of what the offer was.

A vicious circle

Or say you want a credit card offering cashback but your lender can only manage to offer you one without and you refuse – again, the very application taints any future chance of success.

And there’s the rub: too many rejected credit search applications, particularly in a short space of time, can catapult you into a vicious circle.

This is because multiple searches leave imprints on your file and can ruin your credit score as lenders may consider your behaviour as desperate, a sign of over-commitment to debt, or even fraudulent, and rate you accordingly.

Worse, people are lured in by lax marketing laws made more lax by a recent EU ruling that lets card companies advertise headline-grabbing, dirt-cheap “typical rates” as long as 51 per cent of applicants get them - it used to be 66 per cent.

So say if 1,000 people apply for a cheap seven per cent loan, only 510 must qualify: this means 490 go away with a marked card to begin the process all over again.

Each application is essentially a gamble, leaving only the lenders as the real winners.

A better solution

In theory, there’s a way out of this: the “quotation search”.

Instead of an application search which marks your credit files, this type leaves no trace and lets you compare credit cards or loans without fear of further damage.

However, this option is still largely ignored by lenders because, as well as being expensive for them, there’s a much greater risk you’ll simply go elsewhere for a better deal.

The banks should be forced to allow quotation searches, but as yet they don’t have to.

The Treasury Select Committee examined this issue but decided it wasn’t grave enough to warrant any drastic change. That's a poor decision given how expensive credit is today, with many households struggling to find the best deal to help them manage their personal finances.

It’s left price comparison sites such as Confused.com to fill the gap with a service that can help you avoid constant rejection by giving you an indication of the type of card you can apply for and your likely success rate. Find out more about Card Matcher. 

But the fact that cosumers continue to be punished for trying to find the best deal is an utter nonsense Treasury Select Committee, and has no place in consumer-friendly Britain.

Is your PIN safe: Who's looking over your shoulder?

Sam Dunn says that taking security precautions with your financial details is nothing to be ashamed of.

“Her face reddened slowly as a flush grew on the back of her neck and a faintly audible stammered excuse tumbled forth from her lips.”

Sadly this isn’t the intro to a lascivious yet lucrative airport bonk-buster but a minor humiliation in a supermarket checkout queue last month. 

The catalyst was a youngish woman’s efforts to cover her personal identification number (PIN) pad as she tapped in her four-digit security code to pay for a few groceries.

Her awkward hunch over the counter had first sparked a loud titter or two from a fellow queuing shopper in front of me, especially when she appeared to forget the number and had to start again.

Yet it was only the booming boorish comment from a man behind her, a snidey “Don’t worry, my love, I’m not going to rob you!”, followed by the checkout assistant’s rolling eyes that made me realise how uncomfortable the woman was and how unwarranted – and unwelcome – this attention was.

Improved security

The chip and PIN system rolled out in 2005 is designed to reduce card fraud by doing away with easily-forged signatures. By issuing everyone with special plastic and PINs, it’s much harder for criminals to sneakily solicit your details for a spending splurge.

However, while banks and retailers have done their bit to upgrade technology, we also have to play our part to make it work – and too many card users remain churlishly ignorant, impassive or simply don’t give a fig for the risks.

Last year, some £47.6m was withdrawn from ATMs by fraudsters using cloned or skimmed credit and debit cards and, on top, £44.4m spent on stolen or lost and mislaid cards.

This is no chicken feed, but the toe-curling supermarket scene – an embarrassed shopper unjustly ridiculed for being alert to the security risks from simple “shoulder-surfers” (fraudsters who note an uncovered PIN and later steal or copy the card), as well as the possibility of more elaborate scams involving gangs and tampered handsets, staff or CCTV – suggests many have an attitude that believes otherwise.

Safety first

Falling victim to card fraud isn’t just a major inconvenience, with cancelled plastic and a frustrating need to rely on cash for everything.

It also usually requires you to prove your innocence and although consumer law states very clearly that banks must refund fraudulent chip and PIN transactions, banks have become particularly adept at rebutting such claims.

Increasingly, they argue that the customer must have been “grossly negligent” to have let it happen, and refuse to pay out. (If this does ever happen, complain vehemently to the Financial Ombudsman Service which can demand evidence to the contrary.)

Avoiding such a hassle at all cost should be a key priority for any bank customer – yet plenty of shoppers steamroller on with a blithe disregard for PIN security.

A quick check

Last week, for research purposes of course, I determined to see how many PINs I could pick up simply by shoulder-surfing in cash point queues and at store tills.

During 30 minutes inside a busy shopping centre, I made out the four-digit code in eight out of 10 such situations without any special effort; in most cases, absolutely no attempt was made to cover the key pad when punching in their PIN.

Personal security lapses aren't confined to just chip and PIN; on two separate occasions recently, I listened without much difficulty to a stranger's mobile phone conversation.

In each case, I was able to pick up the key details needed to commit fraud: his name, address, card number, expiry date AND the three-digit security number on the reverse.

Of course, the probability of a fraudster eavesdropping at exactly the moment he openly gave away the keys to his credit card account was pretty low, but such indifference can sadly only boost the odds of falling victim to crime.

This kind of recklessness remains the exception rather than the rule, but it's an unhappy state of affairs that so many are so slapdash with their personal financial data.