Misleading offers infect balance transfer market

HALIFAX and Lloyds TSB recently released offers to encourage consumers to take their credit cards' 0% balance transfer deals.

Halifax are offering consumers a 2% cash back rate on the transferred balance while Lloyds are offering a 14-month 0% period, rather than the usual 12.

However, you won't find either credit card loitering near the top of our best buy tables because, just as with so many balance transfer deals in recent months, these offers come with strings attached.

The strings: Halifax Clarity

The Halifax Clarity credit card promises consumers rewards of up to £60 - that is, the 2% cash back rate applies to the first £3,000 moved only - when the outstanding balance is moved within 90 days of opening the accounts.

"By enhancing our balance transfer offer we really have improved what is a great all round credit card," enthuses Jas Singh, acquisition director for Halifax credit cards.

The sting is that Clarity credit cardholders will then be subject to a representative 12.9% APR variable (rising to 21.9% APR depending on the applicants circumstances) on their new balance.

This makes the card useful only for those able to pay off the transferred balance almost immediately.

While virtually all other cards charge a fee for transferring balances, typically around 2.9% of the total, they also have long periods where the transferred balance incurs no interest.

For example, many credit cards offer balance transfer deals with 0% periods of 16 months.

So, while these cardholders would initially pay around £87 to transfer a £3,000 balance, they would pay no interest on it for the next 16 months.

The Clarity cardholder with the lowest rate, meanwhile, would have accrued around £516 of interest over the same period.

The strings: Lloyds Platinum

The Lloyds Platinum credit card's balance transfer period will only be extended to the full 14 months if the cardholder spends £100 within the first three months of receiving their card.

Since the Platinum credit card also features 0% on purchases for the first three months this shouldn't be a problem, as long as the purchases are paid back in full within three months the offer will continue to function as a normal balance transfer.

Leave those purchases unpaid, however, as Lloyds are clearly hoping you will, and you'll pay interest on those purchases until you clear the balance in full since payments are allocated to balance transfers before other transactions.

Under a positive order of payments clause in a credit card agreement the above problem - sometimes known as a 'trapped' balance - wouldn't happen since the highest interest balance, in this case purchases, is always paid off first.

After some Government prodding in March the credit card industry has agreed to bring in a number of reforms in 2011 one of which is a blanket rule that allocation of payments clauses will be positive.

Lloyds are being the slowest credit card provider to move their credit card customers onto a positive order of payments regime, however, even though MBNA who made the change in September.

This case is just one of many in which positive allocation of payments will make an immediate positive impact on credit card holders but the fact that Lloyds included the condition in the first place, demanding spending on a balance transfer card, shows what consumers are up against.

'Bad' balance transfers

As with so many other "offers" made by kindly card companies, these 'bad balance transfers' currently being touted by Halifax and Lloyds only make sense to those already very much in the black, able to pay off their balances in extra quick time.