Don't be a victim of horror hikes in credit card interest rates

HAVE you been rate-jacked?

Credit card companies are imposing horror HIKES of up to 10 per cent on people's APRs.

Which is an almost comic-book irony now we are supposed to live in a world of responsible lending.

But if you arm yourself with a few little-known rules you have the power to stop 'em in their tracks . . .

WHAT IS RATE-JACKING?

It's a nasty credit-crunch phenomenon, where companies like Egg and MBNA "jack up" individual rather than standard rates, supposedly charging poor risks more - but many who have been GOOD customers get hit too.

Pre-recession, lenders salivated at sticking their cards in anyone's hands, regardless of affordability. Now the lending noose's tighter, they're much pickier. So customers who they wouldn't choose to lend to now, even if well-behaved, can see rates ROCKET.

It's like a protection racket, effectively telling people to either CLEAR OUT or pay more.

USE THE RULES AGAINST 'EM

There is a way to STOP these bullies. Last December, the government threatened card companies with the OFT watchdog, so instead they agreed a tepid set of rate "repricing" rules. Yet used correctly, these wield real power.

REJECT THE RATE RISE

The rules say: "There will always be an option to close the account and repay the remaining balance at the existing rate of interest."

How to use it: This is a hidden gem. While closing the account doesn't sound good, this rule is effectively saying that if you agree not to borrow more they must leave your existing debts at the current rate giving you a "reasonable" time to repay.

Both Ombudsman and card trade body tell me "reasonable" means keeping up with existing repayments, i.e. if you only previously paid the minimum, it would be reasonable to continue.

So if your rate is hoicked, you have a RIGHT to close the account and repay.

NO INCREASES IF YOU HAVE DEBT PROBLEMS

The rules say: "We won't increase rates where a customer has failed to make minimum payments, has an agreed repayment plan, or is with a not-for-profit debt advice agency."

How to use it: If you are struggling, see non-profit debt advisers like Citizens Advice, cccs.co.uk (0800 138 1111), nationaldebtline.co.uk (0808 808 4000). Get them to write to your card company to stop the increase. More at moneysavingexpert.com/debthelp .

IT MUST EXPLAIN APR INCREASES

The rules say: "If the customer asks, we will provide an explanation why an interest rate has been increased."

How to use this: Don't be surprised if the answer is "because of your credit score". Yet I don't believe that's acceptable and here is an untested way you could use this to your advantage.

Companies are often unwilling to reveal their hidden credit-scoring systems, so challenge their unreasonable explanation at the Ombudsman (see below) and it may prefer to stop the rate rise rather than explain. Do contact me if this works.

NO RATE RISES MORE THAN EVERY SIX MONTHS

The rules say: "Provided a customer manages his/her account within the T&Cs, we won't increase rates within the first 12 months, nor more often than six-monthly afterwards."

How to use it: Watch for the killer "providing they're within Ts&Cs". Even minor infractions like a day's late payment may mean lenders say they're free to boost rates. Complain it's against the principles.

HOW TO CHALLENGE YOUR CARD COMPANY

If it doesn't follow these rules . . .

STEP 1. Make a quick call.

Politely ask customer services for your rate-raise decision to be reviewed, but say it is under the "December 2008, UK Cards Association statement of principles on repricing". Then quote the relevant rule above. Call-centre staff might not have heard of it but you'll be taken more seriously.

STEP 2. Complain formally.

If that fails, send a formal complaint letter. If you don't, you can't go to the Ombudsman later. To help, a free template letter's at moneysavingexpert.com/ratejacking .

STEP 3. Go to the Ombudsman.

These rules are monitored by the free independent Financial Ombudsman's Service, financial-ombudsman.org.uk , so fill in its complaint form quoting the rules. It will then ask the lender to respond - often companies cave in at this point, preferring to sort it rather than endure an enquiry.

WHAT IF IT HASN'T BROKEN THE RULES?

IF you think your rate rise is unjustified, even if within the rules, you've a right to be "treated fairly".

Formally complain to the card company and if rejected, take it to the Ombudsman explaining why you think its increase is unfair. It's not as easy to win under "fairness" criteria, but you've nothing to lose.

DITCH 'N' SWITCH

IF your rate is jacked and you have savings, pay it off. If not, and you have a good credit history, try to ditch and switch the debt to another card at cheaper rates.

Top current deal is Virgin, with new cardholders switching at 0 per cent for 16 months with a 2.98 per cent fee. See moneysavingexpert.com/balancetransfers .

TV Money Guru Martin Lewis is the creator of the Consumer Revenge website www.MoneySavingExpert.comwhich is packed with info on how to get more money in your pocket.

You can also read more from Martin Lewis on the News of the World's Captain Cash website: click here .

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