Interest-free credit trickery

Sorry if it's beginning to sound repetitive around here, but banks, insurers (well, maybe not all, hey) and essentially anything to do with money of a capitalist bent seem at times to be all for screwing the consumer wherever possible. A recent experience with the finance options available at PC World has not helped change that opinion one little bit.

PC World, and no doubt all the other Dixon Stores Group clone-shops, offer 6 months "interest free credit" on goods above some value or other. This is clearly a useful service to offer, allowing those who want a product now to save up over the next 6 months in order to pay for it. But the way it works is clearly designed to trick any consumer who is not tip-top with regard to their diary management.

The Poorhouse recently saw such an agreement be taken out for a computer worth around £350 or so. Firstly it should be noted that whilst you can escape paying any interest per se - if you're very careful - there is a flat arrangement fee no matter what level of credit you're getting. This is currently £25, which you pay at the end of the agreement. It's therefore not cost-free, but nonetheless paying this might let you get something you want that you otherwise could not have afforded.

The scammage comes as follows. You sign a direct debit type agreement and the finance company involved in the agreement - there's no bashfulness here, the Poorhouse just can't recall its name - actually takes monthly payments from your account, quite low ones - perhaps in the region of £20 or so in this case. OK, perhaps not what you had in mind when you read "interest free credit" but on the face of it they are still providing credit, interest-free (except the arrangement fee).

The bit that the Poorhouse dreads to imagine how many well-meaning consumers have tripped up over is that if you don't ring up on the time of your sixth payment - and note you have to wait until it is that time, you can't simply do it if you decide you can pay the credit off after 2 months for instance - and verbally instruct them to take the rest of the money you owe for your purchase from your account, they don't. Rather, they immediately wham on the "interest" that you would have paid over the whole term of the credited loan if you were paying it off at a low amount per month with a nice high-interest APR.

Upon review, that sentence might not really make much sense at first sight. In the real world, the implications are that if you forget or for some reason cannot ring them on month 6, then rather than take they amount you owe them (or even alert you the fact you owe them) they immediately shove over £200 extra debt on top of the £350 "interest free" credit (plus £25 arrangement fee) you took out.

Yes, it would indeed be your "fault" if you did not comply to the exact rules of the credit agreement you signed up for, but the Poorhouse feels that the racket is set up such that it's almost trying to trick the consumer out of getting the interest-free credit they signed up for and instead landing them with an unreasonably large extra lump sum to pay.

In fact it's not just the Poorhouse that feels this way. Take a look at a relevant press release from the Office of Fair Trading, 5 years ago.

Dixons Group, Harvey Furnishings and Magnum were all advertising 'interest free credit' options or '0% finance' deals. However if a lump sum was not paid off in full at the end of the interest free period, interest was charged for the whole period of the loan. The OFT takes the view that such adverts break the law and can mislead consumers.

The three companies mentioned there had apparently decided to amend the advertising of their credit as "interest-free" rather than be taken to court. 5 years later, there's hardly that much change. The signs in the shop still say interest-free, the customer service reps still talk about interest-free and the deal seems to be exactly the same.

Is the Poorhouse missing something obvious?


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