Newsroom

Barclaycard withdraws misleading adverts

'0 per cent APR forever' claim illegal, says OFT

PN149/03     18 November 2003

Barclays Bank plc (trading as Barclaycard) has agreed to withdraw advertising and marketing material promoting its '0 per cent forever' credit card offer following action from the OFT.

The OFT considered this advertising to be highly misleading. It contained the incorrect claim that the 0 per cent APR was for ever. The 0 per cent rate is in fact only available on balance transfers and only if the consumer uses the credit card to make purchases which attract interest at the higher standard rate. Monthly payments by the consumer clear the balance transfer first and so the consumer cannot keep the transferred balance at 0 per cent for ever. (The annexe[1] contains an example that illustrates further how the card operates.)

Commonly the Barclaycard adverts state, in large type, that 0 per cent APR is to be offered 'forever'. Most of the advertisements explain in smaller type that this relates only to balance transfers and that this rate only applies if the cardholder spends £50 or more each month; otherwise a rate of 6.9 per cent applies.

Elsewhere, and with less prominence and clarity, it states that the monthly payments will be used to meet the transferred balance first. All new purchases incur interest charges in line with the rate stated on the advertisement (e.g. 17.9 per cent APR).

The OFT challenged the legality of Barclaycard's advertisements, which it considered to be in breach of s46 of the Consumer Credit Act 1974.

In particular, the OFT was concerned that the advertisements:

• created a highly misleading impression by using the word 'forever'. The claim that the cardholder could retain the transferred balance element of the loan 'forever' at a rate of 0 per cent APR was incorrect: the offer would last only as long as it took for the transferred balance to be cleared by payments that the cardholder is required to make
• failed to make sufficiently clear Barclaycard's policy on the order of payments, and could mislead consumers into spending at least £50 a month on the card in order to obtain the 0 per cent rate on the balance transfer when they would in fact be charged interest on those purchases at a much higher rate.

The OFT was also concerned that some of the advertisements risked:

• creating the misleading impression that the 0 per cent APR offer applied to all aspects of the agreement (such as standard purchases) rather than just balance transfers
• creating the misleading impression that any sum spent using the Barclaycard would qualify for the 0 per cent offer whereas in fact £50 had to be spent each month. 

The OFT has also challenged the claim that the APR on transferred balances is 0 per cent. The OFT considers that the right APR to quote for the balance transfer part of the product is 6.9 per cent. That is the standalone rate – i.e. the rate not contingent on purchases – for the transferred balance (before it is cleared). Barclaycard have, at this stage, agreed to quote the APR on the transferred balance as 6.9 per cent but do not accept the OFT's position.

Barclaycard does not consider that it is in breach of the Act. However, it has agreed to withdraw advertisements and other marketing material promoting the offer, in accordance with a timetable agreed with the OFT; and to ensure that future promotions comply with the undertakings given to the OFT. They will also write to all affected cardholders clearly explaining the terms of the agreement.

John Vickers, OFT Chairman said:

'Barclaycard promoted this product as offering the opportunity to borrow at 0 per cent interest for ever. It does no such thing. The promotion in these terms has therefore been stopped. Barclaycard owes it to the public to set the record straight.'

ANNEXE 

The following example illustrates how the card works, and in particular how the 0 per cent on transferred balances cannot be for ever.

Someone transfers a balance of £1200 to the card and spends £50 per month on retail purchases (any less would make the rate on the transferred balance 6.9 per cent rather than zero). If they pay back £100 per month, they get 0 per cent on the transferred balance for one year and no more. Throughout the year all their retail purchases with the card become debt on which they pay interest at 17.9 per cent, Barclaycard's typical standard rate quoted in the adverts. At the end of the year they owe the £600 that they have spent plus the accumulated interest.

A smaller monthly repayment would extend the time during which 0 per cent was paid on the transferred balance but at the expense of larger debt at 17.9 per cent interest. It is impossible to pay 0 per cent for ever on the transferred balance because a minimum monthly repayment is required.

NOTES

1. Section 46 of the Consumer Credit Act 1974 provides that an advertiser commits an offence if a consumer credit or consumer hire advertisement conveys information which is in a material respect false or misleading.

2. The legal basis for the OFT's action in this case is the Enterprise Act 2002. Part 8 of the Enterprise Act came into force on 20 June 2003, replacing the consumer provisions of the Fair Trading Act and the Stop Now Regulations. The Enterprise Act improves consumer protection by giving enforcers strengthened powers to obtain court orders against traders that breach a range of consumer legislation; controlling activities such as misleading advertising, misleading price indications, lotteries, sale of goods and services, underage sales, estate agency, misleading health claims, trade descriptions, mock auctions, timeshare, unfair terms in consumer contracts, doorstep selling, distance selling, package travel and consumer credit.

Back to:2003