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Capital One credit card customers have reacted with disgust following notification that the company is raising interest rates by as much as 14%.
The North American company, which pioneered the idea of the 0% balance transfer deal in the UK, has specialised in attracting customers with very low or 0% introductory periods followed by a competitive "go to" rate.
But it is now sending customers letters which read: "Due to changes in the credit environment it is now costing us more to lend. Because of this we have reviewed our customer accounts and are increasing the standard interest rates in your agreement."
One customer, Paul Durman, has been told the rates on his credit card will rise to a variable 18.64% for purchases, 24.49% for cash withdrawals and 9.94% for balance transfers after his March statement.
He said: "For years [Capital One] have attracted people with free balance transfers that, unusually for the credit card industry, are followed by low interest rates after the end of the 'free' period. By the look of it they are now abandoning that and introducing huge rate increases.
"This seems an outrageous hike in the interest rate and a breach of the implicit contract I had with Capital One. I plan to cancel the card; I am sure many others will. Of course, the real problem will be for those who are insufficiently creditworthy to move or pay off their balance. They look likely to be penalised unfairly."
A spokeswoman for Capital One said: "When Mr Durman opened his account in October 2002, he was offered 0% on purchases for six months and an interest rate of 5.78% for the life of balance transfers made in the first six months. He transferred a balance and paid this off in November 2008. His current interest rates are 11.7% for purchases, 17.55% for cash and 3.07% for balance transfers. This means his interest rates are being increased by 6.94%.
"As we have always done, Capital One will allow any customer whose interest rate has been increased to opt out and pay down their balance at the existing interest rate. Customers do not have to repay their balance in a lump sum – they can pay off their balance as they choose, as long as their monthly payments are in line with, or above, our minimum requirement."
However, visitors to MoneySavingExpert.com agree that Capital One has breached their trust. One customer posted: "Just received a letter from Capital One upping my rate from 14.5% to 29.88% – yes TWENTY NINE [point] EIGHT EIGHT. Good job I recently cleared that card. Spoke to them to see if they would move my account over to the 9.9%. Didn't want to know, even though I have been with them for 6 years and never missed a payment."
Another said: "I received my Capital One letter today telling me my rate was rising from 15.82% to 23.96%, a rise of over 8 points or 51.5% (you choose). Capital One have joined MBNA in trying to rip off their customers even if, like me, [they] have always paid on time and more than the minimum payment required."
Even customers who signed up for Capital One's "rate for life" card, advertised for months on television as charging an indefinite flat rate of 5.9%, claim they have received letters warning them that the rate they pay will rise. One customer said: "I have been with Capital One since 2005 and I signed up at a rate of 5.9% for life. I got a letter this morning saying because of the current climate they are raising my interest rate to 9.9%!"
The Capital One spokeswoman said she believed no customer would suffer a rate increase of more than 6.94%, and that the company would not increase the interest rates of any of customers who are on a promotional rate.
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