Co-op admit they were wrong on rate jacking

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This week however, they've agreed to review the policy.

What went right?

Co-operative released a new rule which meant that customers who rejected a rise in their APR would be asked to pay the balance of their card in full within six months.

If the balance wasn't paid within six months the rate would be hiked anyway, Co-op warned, potentially costing customers thousands of pounds in extra interest payments.

The move also breaks the spirit, if not the letter, of new rules agreed to by the credit card industry last year which govern how financial institutions should deal with their customers when they feel the need to impose interest rate increases.

But a Co-op spokesperson said: "We believe six months to be a reasonable length of time to allow our customers to pay off the remainder of their balance."

However, since the issue was featured on consumer site Moneysavingexpert, which first bought the issue to light, Co-op have had a change of heart.

"Following the [MSE] article, and after further guidance from the industry, we are currently reviewing with the intention of removing our policy of stating a specified timescale (6 months) for customers to repay any existing credit card debts, when rejecting a rate increase," a Co-op spokesperson said.

"We pride ourselves on our fair and honest approach and it is important to note that our original decision to incorporate a specified timescale was done in the spirit of being open and transparent with our customers and providing some clear guidelines."

Rate rise guidelines

Under consumer guidelines, credit cardholders have a right to reject a rate rise within 60 days of the notice and continue to pay back a balance at the original APR.

The company must also tell the customer exactly how much their borrowing will cost at the higher rate of interest.

New rules agreed by the credit card industry last year state that consumers must be given a 'reasonable' amount of time to clear any debts.

Major players within the credit card industry such as American Express and Lloyds TSB all allow customers who reject rate rises as long as they require to pay off any outstanding balance as long as payments are kept up to date.

Still unresolved

However, it's worth noting that although The Co-operative Bank have agreed to review their policy, which was implemented at the beginning of February, they haven't yet decided whether they'll keep a time frame during which card holders must pay off any outstanding balances.

It remains to be seen, then, whether they'll actually follow American Express, Lloyds et al in offering an unlimited repayment period.

However, it would be odd if Co-op attempted the same trick on those facing hikes again.

Already, the new rule is a stain on the company's previously spotless record on customer service.

Co-op bank has a range of fairly low advertised interest rate cards including a 'think' credit card which donates a proportion of purchases to help the rain forest and 0% balance transfer credit cards.

In addition, the Co-op hasn't been one of the banks most commonly associated with so-called interest rate jacking in the past.

The practice became fairly common in recent years as lenders bought in risk-based re-pricing. At that point, one such instance saw thousands of Egg customers memorably subject to large interest rate increases.