Big changes for Egg customers

Egg has made changes to its credit-card contracts that could greatly affect many of its customers.

I've read so much small print for you guys in the past two weeks that my eyes are melting onto the keyboard like runny eggs (I hope you're not eating) or like one of Dali's dripping images. Today is no different, as I've finally had the exciting opportunity to look through the changes to the Egg credit card terms and conditions, which were announced last week and are coming into effect on 28 May 2009.

There are some very significant changes, all of which are about reducing the amount of money it's lending, whilst increasing the interest it rakes in - meaning Egg is desperate for cash.

What does it mean for you, though? These changes could seriously affect your ability to borrow from Egg, or make it more expensive or difficult to do so.

Here are the important changes:

Cash withdrawals

The minimum fee for withdrawing money from cash machines has risen from £3 to £5. This is on top of the horrendous 23% or 26% interest that you are charged from day one (i.e. it isn't interest free for 45 days, even if you pay your balance on time).

The bottom line is, it'll cost you at least £5 regardless of how small your withdrawal. Plus, it'll now cost you £6 to make a withdrawal of £50, assuming you pay it off a month later.

Cash withdrawals are always hideously expensive, but this change makes it, I believe, the most expensive card for withdrawals. So do not use your credit cards for cash withdrawals. If you think withdrawing cash using a credit card is your only means left to make ends meet each month, speak with a debt charity immediately, such as National Debtline. There are always better solutions than credit-card cash withdrawals!

Egg will stop you borrowing if it thinks you're in trouble

Egg can now decline transactions if it thinks you're in financial trouble even if you haven't missed any payments. It is allowed to check your credit report as a matter of routine, so if it sees too much borrowing or missed payments elsewhere, it may begin to decline transactions.

I'm all for responsible lending, so this suits me. I hope they start declining transactions from people with obvious troubles, because borrowing your way out of debt doesn't work. It's a shame Egg has left this change till a time when it suits it financially, rather than doing it years ago to help keep people from dangerous levels of debt. If it had, it wouldn't be so desperate for cash now.

There's a small possibility Egg will abuse this new power, but if you feel you're treated unfairly you can complain to the Financial Ombudsman Service.

Rapidly snowballing financial difficulties

Previously, if you missed a payment:

• Egg would cancel any special deals, e.g. 0% offers;
• Egg would add a £12 charge to your account;
• You would continue to pay interest on the entire balance, including on the part of the debt you should have repaid that month;
• Egg would put a black mark on your credit reports.

I think all this is enough of a penalty.

But now, Egg had added a further punitive measure. It will now insist that in the following month you pay the payment you missed. Therefore, on a balance of around £5,000 you'd normally pay about £100 a month, but after a missed payment you'd have to find around £200!

If you struggled to pay £100 in the previous month, it's likely you'll struggle to repay £200 next month. If you fail to make that payment, the following month you'll be required to pay more than £300, as your debt swiftly grows. Crazy.

Forcing customers out

Egg clearly wants to limit what it lends out and encourage early repayment of entire debts.

So it's now giving you the right to refuse any increase in interest rate that it imposes (remember, interest rates are variable), but only on the condition that you can no longer add to your balance. So effectively you stop spending on the card.

To take advantage of this get-out-clause, you have to notify Egg before the rate change takes effect.

I think Egg will probably hike rates some time in the months following 28 May. Anyone desperate enough for more money who can't get a new credit card will have to accept the higher rate. Others will either transfer out - repaying Egg at the same time - or will decide not to pay a higher rate, meaning they will have to reduce their balances every month from now on.

> If you don't like the changes to Egg, get cracking and search for a better credit card through lovemoney.com