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
Smile
Green/Ethical Products
All Co-operative Bank (and Smile) products are covered by its customer-led Ethical Policy. For details of additional green and ethical products on offer, see the profile for the Co-operative Bank.
Ethical Lending or Insurance
The Co-operative Bank’s Ethical Policy applies across all its services and is developed in consultation with its customers. The Policy’s exclusion/inclusion criteria include:
Human rights
The bank will not finance:
- Any government or business which fails to uphold basic human rights within its sphere of influence
- Any business whose links to an oppressive regime are a continuing cause for concern
Arms trade
The bank will not finance any business:
- Involved the manufacture or transfer of armaments to oppressive regimes
- Producing equipment to be used in torture or in any other way that violates human rights
- Involved in the manufacture or transfer of indiscriminate weapons e.g. cluster bombs and depleted uranium munitions
International Development
The bank will not finance organisations:
- That fail to implement basic labour rights as set out in the Fundamental ILO Conventions. These include the avoidance of child labour, or to oppose the rights of workers to freedom of association (e.g. in a trade union)
- That take an irresponsible approach to payment of tax in the least developed countries or engage in irresponsible marketing practices in developing countries, for example with regard to tobacco products and manufacture
Ecological impact
The bank will not finance any business:
- Whose core activities contribute to global climate change via the extraction or production of conventional fossil fuels (coal, oil and gas), with an extension to the distribution of fuels that have a higher global warming impact, e.g. tar sands and some biofuels.
- Manufacturing certain polluting chemicals
- That harvests natural resources in an unsustainable way
- That develops genetically modified organisms where there is evidence of uncontrolled release into the environment or negative impact on developing countries
- That developments nanotechnology in circumstances that risk damaging the environment or compromising human health
The bank will also seek to support businesses involved in:
- Recycling and sustainable waste management
- Renewable energy and energy efficiency
- Sustainable natural products, including timber and organic produce
Animal welfare
The bank will not finance businesses involved in:
- Animal testing for cosmetic or household products or their ingredients
- Intensive farming, for example caged egg production
- Blood sports
- The fur trade
- The exploitation of great apes, for example in experimentation or general commercial use
The bank will seek to support businesses involved in:
- The development of alternatives to animal experimentation
- Farming methods that promote animal welfare like free range farming
The implementation of Co-operative Bank's Ethical Policy is assessed independently by a third-party (csrnetwork) and customers are invited to comment to express concerns and opinions of it too. The bank’s Ethical Policy Unit is comprised of five full-time staff members.
Social enterprise
- The bank seeks to support charities, co-operatives, credit unions and community finance initiatives.
Responsible Lending
1. Credit Lending
Smile offers 70% to 85% LTV (loan-to-value) rates depending on mortgage product. Its LTI (loan-to-income) rates stand at 3.5 times joint income on a joint application and 4.5 times income on a single application. The bank’s LTV rate compares favourably with FSA’s Turner Review, which suggests that LTV rates be set at a maximum of 90%, i.e. that borrowers should have at least a 10% deposit for a mortgage. The Review’s analysis suggests lending 3.5 times sole income for single borrowers, however.
In its Terms and Conditions for loans the bank states that it will use applicants’ personal information at credit reference or fraud prevention agencies.
No information was found as to whether the bank has a policy to avoid or prevent the offering of unrequested increases in credit limits to customers.
2. Debt Warning
The bank offers suggestions as to how to calculate what customers can afford to borrow when seeking secured credit (mortgages). It also offers a generic warning: ‘Your home may be repossessed if you do not keep up repayments on your mortgage’.
No debt warning notices or suggestions to those noted above were found for customers seeking unsecured credit (i.e. personal loans). However the bank does refer both mortgage and unsecured loan customers to the FSA’s Financial Healthcheck and Debt Test tools for help with budgeting, borrowing and planning for the future.
3. Debt Management and Advice
With regard to payment default and handling payment problems, the bank offers general suggestions, as well as specific in-house services and outlines the different stages it will go through with customers experiencing difficulty making mortgage payments. A mortgage helpline is available to customers with secured loans. The bank will also consult a debt advice agency, e.g. Consumer Credit Counselling Service (CCCS), if requested.
It states that it will give customers ‘reasonable time’ to pay back the debt. The bank says it ‘might’ be able to pursue the following:
- Arrange a new payment plan
- Change the way payments are made, or the date they are made
- Allow customers to pay back their mortgage over a longer period of time, thus reducing monthly payments
- Change the type of mortgage
The bank also outlines the steps leading up to repossession of property/court action. It says that it might agree to the customer remaining in the property to sell it themselves depending on their circumstances.
With regard to unsecured credit the bank refers customers to Visa Europe's Better Money Skills website for ‘help with budgeting, understanding credit and managing your credit card’.
No other information was found on debt management or advice for customers with difficulties related to unsecured credit.
On the subject of payment holidays, Smile/Co-operative includes them among standard features for mortgage products, but does not clarify the circumstances under which they may be available. According to the bank, payment holidays may be taken for up to six months, though interest will continue to mount up and customers will be required to either increase their mortgage term or make higher monthly payments.
In the Terms and Conditions of personal loan products it states that a payment holiday of three months is available to Current Account holders who have held their account for seven months or more.
No evidence was found that the bank offers re-housing advice to customers facing re-possession or that it liaises with organisations such as Shelter and the Citizens Advice Bureau to work out re-housing arrangements.
Financial Exclusion
The bank offers a basic bank account to low-income and unemployed customers. It is also the largest provider of banking services to credit unions in the UK – covering 60%.
The bank provided IT, administration and training resources to the recently launched Credit Union Current Account (operational in a small but growing number of credit unions since 2007) and has also made donations to support the Association of British Credit Union’s (ABCUL) annual conferences and its newsletter (£24,000 in 2007).
The bank is engaged in a project, Credit Action, to enable prisoners to open a basic bank account to facilitate employment and housing for offenders leaving prison.
Access: the bank offers financial products and service through non-branch-based channels including the internet, telephone, Post Office and a network of financial advisers, enabling customers to access many services from home.
Smile’s website is ranked as meeting A-level in relation to their level of accessibility for customers with disabilities according to the Web Accessibility Initiative’s (WAI) content accessibility guidelines (where AAA is the most accessible).
Microfinance: in 2007 the Co-operative Bank created a special £25m fund to support the development of small businesses in a number of third world countries.
Work in Communities: As at June 2007, 8% of business current accounts and 7% of business loans were provided to small businesses in deprived areas. This compares to industry average figures of 4.7% and 3.6% respectively.
Environment
The bank’s environment policy covers climate change/energy efficiency and waste management and shows a commitment to continued improvement of environmental performance and has targets for same. An Environmental Advisory Committee is in place.
The bank has also been involved in lobbying the UK government with regard to carbon emission reduction targets and has worked with environment charities like Friends of the Earth to further the climate change cause.
Some 99% of the bank’s electricity is sourced from renewable sources, such as wind and hydro technologies. The bank has also committed £400 million to invest in the renewable-energy sector.
Carbon Neutral
The Co-operative Financial Services (incorporating Smile) plans to go ‘beyond’ carbon neutral by repaying 10% off its outstanding carbon ‘debt’ in addition to the existing carbon neutrality of all its business operations.
Equal Opportunities
The bank’s parent company, Co-operative Financial Services, has gone ‘beyond’ carbon neutrality by repaying 10% off its outstanding carbon ‘debt’ in addition to its existing carbon neutrality.
Women on the Board
Smile is part of the Co-operative Bank which reported that 10% of its board members were women in 2007.
Voluntary Standards & Initiatives
The Co-operative Bank is a signatory/member of a number of charters and initiatives including:
Charitable Giving
The bank’s parent company, Co-operative Financial Services, donated 2.2% of its pre-tax profits (£3.4m) to the community (figures for 2007).
Smile
- Current Accounts
- Savings
- Credit Cards
- Loans
- Mortgages
- Investments (through Co-operative Investments)
- Insurance (Home, Motor, Life, Health – through Co-operative Insurance)
- Student Current Account
Smile
Smile
The Co-operative Bank
Customer Services
PO Box 200
Delf House
Southway
Skelmersdale
WN8 6GH
