Royal Bank of Scotland is to break with the credit card market and scrap all 0% interest offers, which it says lure customers into a build-up of expensive debt.
Instead, RBS will tomorrow launch a card with a permanent low fixed rate and an annual fee, and refuse to compete in the battle to sell the most tempting limited period cheap credit.
The move follows the bank's abandonment of "teaser" bonus rates on savings and its promise to make its products available to all customers through all channels. By taking this action, it challenges the financial industry's most entrenched practices.
"We are an organisation that has lost its way and is actively trying to recover the trust of our customers," said Moray McDonald, interim head of products and marketing at RBS.
"The whole area of pricing which starts low and deliberately goes higher we have a lot of disquiet about … it is the way the credit cards market works, and in particular the market for new cards is dominated by teaser rates. [But] saying 'everybody does it' isn't really a justification."
RBS cites industry research which shows that most people enticed to take out new cards by 0% balance transfers do not pay down the transferred debt when the free period - now extended to more than 30 months by the most aggressive card providers - ends.
"If it was the case that people paid it down, that would obviously be helpful and it is what most of them intend to do - the challenge is they don't do it," McDonald said. "Two-thirds of customers hit the payment wall when the rate goes from zero to 16, 18, 21 or even 29.95%, and they then have payments which are potentially unaffordable."
The average customer on a 0% card has £9000 of unsecured debt, the bank said.
It will offer its headline 6.9% rate on the new Clear Platinum card to only 51% of customers, while more risky customers will get a still competitive 9.9% or 14.9%.
But the rates are intended to be fixed, and customers could be moved to a lower rate if their credit rating improved. The card will cost £24 a year, which McDonald said is "a fraction of what customers would typically pay on the way in with a 0% card".
Typical balance transfer fees have always been around 3%, but Nationwide recently launched an eye-catching fee of only 0.75%, and this week Bank of Scotland unveiled a new balance transfer card with an effective fee of just 0.7%. It offers 0% on transfers for 15 months and on purchases for six months, after which the rate jumps to 17.9%.
Alan Brindley at Bank of Scotland Credit Cards said: "Taking advantage of 0% balance transfers is a savvy way to clear your credit card debt. Our market-leading balance transfer fee of just 0.7% means it will cost customers a lot less to transfer balances."
McDonald said: "It is easy to imagine that 0% is ubiquitous, but if you look at all the debt that is held on UK credit cards, a very high proportion is paying between 18% and 30%. Any of those customers would benefit from a card like ours, as would anyone with a card balance of over £250."
Existing RBS cardholders will be made aware of the new offer, the bank has said.
On the bank's new "fairness" model, which comes more than five years into state control of RBS, McDonald said it was aimed at avoiding "offers with tricks" or reliance on customer inertia. He said: "We think this is the practice in financial services which most annoys customers and is hardest to justify. It is a completely new way to go, and it will be interesting to see whether others follow us."