Credit Card Overview
Fact: there are more credit cards than people in Britain and the country's debt problems are amongst the worst in the world.
When choosing a card provider, its policies on responsible lending and debt advice provision are of key importance. The green and ethical concerns you bring to who you bank with, concerns about equal opportunities or the environment, are just as applicable to who you get your credit card from.
This section also looks at the green or ethical worth, as well as the practicalities of charity affinity cards.
Does your credit card provider treat its customers responsibly?
What are charity affinity cards and how do they work?
Does your credit card provider treat its customers responsibly?
Responsible lending
According to the British Banker's Association (BBA), responsible lending means 'providing credit, based on background checks and professional judgement, to people who can accommodate repayments without getting into financial difficulty'. As the sheer number of people in debt today shows, these principles are not always well applied by credit lending institutions. In 2008 our credit card debt hit £54.4bn and continues to rise.
Transparency is key - credit card customers should be presented with the terms and conditions attached to their card up front and in plain English. It is important to check whether your provider has a responsible lending policy in place, and how it is implemented if it does exist.
Debt management
Credit card debt is all too common in the UK. Some financial institutions offer basic in-house debt advice services, the scope of which can vary greatly. Often providers will refer customers to free advice services including the Consumer Credit Counselling Service, the Citizens Advice Bureau and others.
Use our search tool to find details of your provider's debt management services. Information on this subject can be found under 'Responsibility toward Customers'. Alternatively contact your provider directly for further information.
What are charity affinity cards and how do they work?
Affinity card providers make a small donation on behalf of the card holder to the charity it is associated with.
Such charity donations average around 25p per £100 spent. So, in order to donate £100 to your charity of choice you'd have to spend £40,000 with the card. Most providers also make a one-off donation of between £5 and £25 on each new card account.
In their analysis of charity affinity cards moneysavingexpert.com suggest that a more effective way to donate money is to use cash back cards. Cash back cards operate in much the same way as affinity cards except that instead of a charity, additional money goes to the card holder and this money is usually considerably more than a standard charity card donation. The cash back card holder can then donate the money they have earned to the charity of their choice and if eligible, Gift Aid it, so rather than £1 the charity will receive £1.28. Donations on affinity cards are not eligible for Gift Aid.
View the range of charity affinity cards available on the market click here.
Your next steps
See our guide Next Steps - Credit Cards for more suggestions on how to find out about your credit card provider's green and ethical policies, how to contact them and how to find the right credit card for you.
Credit Card Search
Credit Card Provider
First Direct
Green/Ethical Products
None
Ethical Lending or Insurance
Parent company, HSBC, has guidelines covering commercial banking including lending to companies involved in mining, metals, energy, chemicals, freshwater infrastructure, forest land and forest products. These policies define activities they will not support (prohibited), and those they will only support if undertaken to a high standard (restricted), as well as other minimum standards and examples of good practice. These are guidelines rather than a strict operations-wide policy.
HSBC’s Group Corporate Sustainability Risk Management team is responsible for providing Sustainability Clearance, developing policies, guidance and processes, training and working with Sustainable Risk Managers Group-wide.
Responsible Lending
1. Credit Lending
First Direct offers LTV (loan-to-value) mortgage rates of up to 80%. Its LTI (loan-to-income) rates are 3.5 times gross salary for sole applicants; 3.5 times the higher salary plus 1.5 times the lower salary for joint applicants or 2.75 times the combined gross annual salaries. These rates compare favourably with the FSA’s Turner Review suggestion of a maximum LTV of 90%, i.e. the borrower should have at least a 10% deposit, and an LTI of 3.5 times for sole applicants.
In assessing applications for unsecured credit, the bank says that credit scoring ‘may’ be applied. This uses information supplied by the applicant as well as that obtained from credit reference agencies.
No information was found as to whether the bank has a policy to avoid or prevent offering unrequested increases in credit limits to customers.
2. Debt Warning
The bank issues the following warnings to its mortgage customers:
- ‘Think carefully before securing other debts against your home.’
- ‘Changes in exchange rates may increase the sterling equivalent of your debt.’
- ‘Your home may be at risk if you do not keep up repayments on your mortgage.’
With regard to unsecured credit the bank outlines the consequences of default on personal loans in its pre-contractual terms and conditions. These include sending the customer an initial default notice and the potential disclosure of information about the borrower’s conduct to credit reference agencies. Other pre-contractual warnings include the statement: ‘Missing payments could have severe consequences and make obtaining credit more dificult’.
The bank does not refer customers to the FSA’s Debt Test, but rather to its own budgeting form – which list outgoings against income to see the extent of any imbalance.
3. Debt Management and Advice
Though it does not specify what debt relief options might be available, the bank refers customers to its ‘trained credit counsellors’, as well as providing a list of external debt advice providers, including the National Debtline and the Citizens Advice Bureau. The bank does not provide a clear set of steps with regard to the repossession process, nor does it outline how it may help customers restructure their mortgage payments. It states that it encourages customers to make contact if they are having difficulty with their mortgage repayments and that it looks at each case individually.
Also, no evidence was found that the bank offers re-housing advice or liaises with organisations such as Shelter and the Citizens Advice Bureau to work out re-housing arrangements with mortgage customers facing repossession.
Financial Exclusion
First Direct does not offer any products or services to financially excluded customers.
It states that its website adheres to the accessibility guidelines.
The parent company HSBC has also been involved in a variety of microfinance projects, recently in Asia and Latin America.
Environment
The parent company’s environment policy applies across the group and covers the key areas of climate change/energy efficiency and waste management. The policy also contains a commitment to continued improvement in performance.
Carbon Neutral
The HSBC Group’s business operations have been carbon neutral since 2005.
Equal Opportunities
The group’s policy addresses the key issues of gender, race, sexuality and disability.
Women on the Board
According to 2007 figures, 10.5% of the parent company's board members are women.
Voluntary Standards & Initiatives
The parent company is a signatory to a number of charters and initiatives including:
First Direct
- Current Accounts
- Savings
- Investments
- Credit Cards
- Loans
- Mortgages
- Insurance (Home, Motor, Travel, Life)
