Protecting your income has rarely been more important

September 17, 2008 | posted by Pam Atherton in Insurance, Loans, Mortgages, Store Cards | comments (0)

As the credit crunch takes hold, 40,000 workers in the financial services industry alone are expected to lose their jobs over the next year.

Some of the 4,000 Lehman Brothers employees, who are set to lose their jobs by the end of this week,  may rue the day they failed to take out income payment protection insurance in happier times.

Not to be confused with payment protection insurance (PPI) which only protects your credit card, loan or mortgage payments for one or two years in the event of accident, sickness or unemployment, most income payment protection insurance policies(IP) will pay out around half to two thirds of your monthly income until you are able to resume work, or until retirement if you can never work agan.

This means that IP is far more expensive than PPI - not only does it pay out for longer, but some occupations are clearly more expensive to insure than others. 

Builders, scaffolders and others in physically dangerous jobs are obvious examples, but in recent months, the employees of investment banks, estate agents and housebuilders have found it hard or impossible to get cover because of the widespread expectation of imminent redundancies in these sectors. Such workers may have no choice now but to go to a specialist broker to obtain cover.

This is why it is always best to buy IP when you least need it. When the economy is heading into recession, underwriters are clearly going to be extremely wary as to whom they are willing to insure.

But you can limit the cost of IP by accepting a long deferment period - the amount of time that must elapse before you can receive a payout. If your employer’s sickness benefits will cover you for the first 3 or 6 months of long term sickness, your IP policy does not need to kick in until then.

You will have to complete a medical questionnaire and for large amounts of cover, you may have to have to undergo a medical as well. It is also essential to be absolutely honest in your responses as insurers will not honour a claim if you have witheld ‘materially relevant information’ - even where the non-disclosure does not relate to your claim.

Regrettably, some insurers  exclude back pain and stress-related illnesses, even though these are the most common causes of long term absence from work.  It is therefore essential that you take independent financial advice so that you select a policy which meets your needs.

LV= recently launched a combined mortgage and lifestyle protection policy, while LifeSearch offers a product called ‘Real Life Cover’ which combines life, critical illness and income protection.

For more on IP, read the Defaqto guide:
http://www.defaqto.com/consumer/insurance/life/income-protection.aspx
www.LV.com

www.lifesearch.co.uk

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Mis-selling of PPI continues apace

September 15, 2008 | posted by Pam Atherton in Insurance, Loans, Mortgages, Store Cards | comments (0)

It’s a shocking fact, but payment protection insurance (PPI) continues to be mis-sold despite acres of bad publicity about this product in recent years.

PPI is a voluntary insurance which pays off credit cards, personal loans and mortgages if you are unable to work because of accident, sickness or unemployment. But it typically only covers you for one or two years and is normally only suitable for people who are employed.

The self employed, unemployed and contract workers are not usually eligible to make a claim but thousands of people have bought these policies without realising this.

In addition, a Which? survey recently found that 1.3m people had bought PPI in the mistaken belief that it was compulsory if they wanted to take out a personal loan, credit card or mortgage.

Which? estimates that £970m is being spent on PPI each year, much of it bought by default because some providers automatically include the cover in quotations.

In June this year, the Competition Commission calculated that customers were being overcharged because they are unable to shop around at the point of sale. It also found that PPI is so profitable (generating £1.5bn in excess profit) that it has been subsidising cheap personal loans.

Numerous retailers and banks, such as Land of Leather and HFC have been fined for mis-selling PPI, yet the bad publicity has not prevented people from continuing to buy inappropriate cover.

But Defaqto head of Insight, Brian Brown, warns policyholders not to cancel existing cover if you have appropriate cover in place. “Providing you definitely want the cover and have the right policy for your needs and circumstances, at a time of rising unemployment, now is just the time when you might have need of it.”

If you want long term insurance to protect your income if you are unable to work because of illness, you may wish to consider income payment protection insurance, which is more expensive but can provide cover up till retirement.

For more on income payment protection insurance read our guide

http://www.defaqto.com/consumer/insurance/life/income-protection.aspx

For more on payment protection insurance (PPI):

http://www.defaqto.com/consumer/insurance/life/income-protection.aspx

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Overdraft complaints put on hold for another six months

July 25, 2008 | posted by Pam Atherton in Banking, Loans | comments (0)

The long running dispute between disgruntled bank customers and the high street banks over unauthorised overdraft charges shows no sign of an early resolution.

At the beginning of July, Mr Andrew Justice Smith announced at the end of a three day hearing, that no immediate ruling would be made regarding banks’ historic overdraft charges.

The High Court case had heard arguments on whether charges going back for years can be challenged by bank customers.

In the meantime, tens of thousands of cases brought by bank customers for the refund of bank charges have been held in abeyance, since the Office of Fair Trading and eight banks agreed on a test case in July 2007 to clarify the dispute.
The OFT has been seeking legal confirmation that it can rule if bank overdraft charges of up to £35 per item are fair or not, while the banks are fighting to maintain the £3.5bn a year of income they generate from customers going into the red without permission.

The banks are already appealing against the judge’s initial ruling that the OFT can assess whether the banks’ current fee agreements with their customers are fair or not.

At the hearing at the beginning of July, the judge said he needed time to consider the arguments on whether the fees banks have charged historically can be assessed for fairness and did not give a time when he would announce his decision.

Meanwhile, the Financial Services Authority has  extended for another six months, pending the outcome of the High court case, the ‘waiver’ of its normal rules,  whereby banks are required to deal with complaints promptly.

The waiver means that banks are not required to handle complaints relating to unauthorised overdraft charges within the time  limits set out under the FSA’s dispute resolution procedure.

But the watchdog says it will review the waiver again before the end of January 2009.

The regulator has also issued guidance stating that banks should waive future overdraft charges and not enforce past ones in ‘hardship’ cases, defined as being where a customer’s debts consist largely of previous overdraft fees.

But campaigners have hit back saying that the further delay before the tens of thousands of county court cases can be heard is unacceptable.

David Black, Defaqto banking principal said: “The case is likely to drag on for years as it may be referred to the European Court.  The ultimate result is likely to be the end of free banking as we know it.”

In the meantime, disgrunted bank customers can always switch to another bank. Take a look at the Defaqto current account Compare Tool:

http://www.defaqto.com/consumer/current-accounts/compare-current-accounts.aspx

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Lenders raise fixed rates, but savers have rarely had it so good

June 13, 2008 | posted by Pam Atherton in Banking, House prices, Loans, Mortgages, Savings | comments (0)

More than a dozen lenders have raised the cost of their fixed rate mortgages, further tightening the credit crunch for homebuyers.

The hikes reflect the higher cost of inter-bank lending rates, falling house prices and fears of interest rate rises before the end of the year.

The average cost of a two year fix, on a 90 per cent loan-to-value loan, has jumped to 6.75 per cent, as major lenders such as Halifax, RRS and Birmingham Midshires reprice their deals.

The Council of Mortgage Lenders says that fixed rate deals became more popular in April, accounting for 59 per cent of all new loans.

The cost of mortgages for those with only a small deposit is becoming increasingly expensive, with Abbey raising the cost of its five year fix (for those with only a 5 per cent deposit), to 7.04 per cent.

This deal  also comes with an eye watering £2,499 arrangement fee, payable upfront.

But for savers, conditions have rarely been better. Research by Defaqto’s banking consultant, David Black, shows that 13 banks and building societies are paying 7 per cent (gross AER) or more on one, two or three year fixed rate bonds, on a minimum investment of  £1,000.

Mr Black says: “It’s a rare event when fixed rate bonds paying 2 per cent above the base rate are freely available. Last year, when the base rate was higher than it is now, a handful of 7 per cent bonds were briefly offered, but these were quickly withdrawn as investors piled in. The sheer volume available now suggests that some of the current crop will be around for sometime longer.”

To compare savings rates, visit: http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Watchdog warns against false IVA claims

June 12, 2008 | posted by Pam Atherton in Banking, Loans, Mortgages | comments (0)

It must be a sign of the times. As though the soaring number of individuals with serious debt problems was not bad enough, a new breed of vulture is trying to exploit their misery by giving them poor advice. 

The Office of Fair Trading has warned a dozen firms to stop making false claims to individuals who have declared themselves insolvent and taken out an Individual Voluntary Arrangement or IVA.

The latter is an agreement,  between a debtor and his or her creditors, to repay  a portion of the money they owe over a set period of time, with the help of an insolvency practioner.

There is less stigma associated with IVAs compared to bankruptcy and you will normally be able to keep your home.  To abandon such an agreement could have serious consequences as the cost of setting up an IVA can be considerable and is irrecoverable.

Bankruptcy, by contrast, is the ‘nuclear option’ for anyone in serious debt.  It can mean the losing your home, forfeiting control over your finances, losing access to credit and can place restrictions on the type of employment you can pursue.

The offending firms have been sending unsolicited letters to insolvent individuals advising them to cancel their IVAs and to go bankrupt instead. The letters suggest that the individual’s original IVA might have been mis-sold or inappropriate and that to go bankrupct would be a better course of action.

The OFT has warned the companies that if they do not stop their mailings they will be fined or closed down because encouraging someone to scrap an IVA could make their financial position worse.

 If you want to complain about receipt of one of these letters, or have another consumer gripe, the OFT Direct website  is a mine of useful information on your consumer rights and how to gain redress  http://www.consumerdirect.gov.uk/

There were more than 44,331 IVAs taken out in 2006, compared with fewer than 5,000 in 1998. The figures began to fall during 2007, but are expected to rise again during 2008.

The number of individuals choosing bankruptcy stood at 13,080 in the first quarter of 2008. This was up from 11,674 in the previous three months, but a decrease of 13 per cent on the number of petitions in the same quarter of 2007.

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

No respite in mortgage rate rises

June 9, 2008 | posted by Pam Atherton in Banking, House prices, Loans, Mortgages | comments (0)

Despite base rate having been held at 5 per cent last week, mortgage lenders continue to hike lending rates.

On Friday, Bradford & Bingley increased rates for new borrowers by between 0.05 per cent and 0.55 per cent, saying that it was forced to do so because it had become more expensive to raise funds on the money markets.

As the largest buy-to-let lender in the UK, this does not bode well for cash-strapped landlords looking to remortgage. All Bradford & Bingley’s new fixed rate buy-to-let deals have increased by 0.55 per cent, and all its new variable rate mortgages have jumped by 0.45 per cent.

Higher borrowing rates make it increasingly difficult for landlords to arrange new finance on their properties because lenders are demanding that rental come covers 125 per cent of their monthly mortgage payments.

During the credit boom, some buy-to-let lenders relaxed the ‘rental-income-to-mortgage criteria,’ allowing landlords to borrow with only 100 per cent rental cover.

This is dangerous, as it leaves no leeway for the cost of voids, difficult tenants, agency fees, repair and maintenance and other rental costs.

Bradford & Bingley shocked the market last week by announcing a 52 per cent jump in mortgage arrears in the first four months of 2008 and £16m in mortgage fraud. The fear is that more expensive buy-to-let mortgages will simply exacerbate the problem, creating a downward spiral of mortgage arrears and repossessions.

Elsewhere, Nationwide last week raised the price of its new fixed rate mortgage deals by up to 0.3 per cent.

As from today, Abbey is hiking rates on its 85 per cent loan-to-value mortgages and on its 5-year fixed rate range from 0.07 per cent and 0.26 per cent.

But Abbey insists it still offers some of the most competitive deals on the market for those with a deposit, or equity in their property, of at least 30 per cent.

Its best rates at 70 per cent LTV are a 2-year tracker at 5.97 per cent and a 3-year fix at 5.84 per cent. At 75 per cent LTV, it is offering 2 and 3 year fixed rate deals at 6.14 per cent.

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Competition Commission slates overcharging on loan insurance

June 5, 2008 | posted by Pam Atherton in Banking, Credit Cards, Insurance, Loans, Mortgages | comments (0)

An investigation by the Competition Commission into the payment protection insurance market has found that customers are being overcharged by £1.4bn a year.

PPI is insurance against not being able to pay off loans and credit cards, if you fall ill or get made redundant.

As expected, the Commission found that there was a lack of competition in the market and that customers are being overcharged and often mis-sold to.

It suggests that companies might be banned from selling PPI policies to customers when they take out  loans and that it might cap prices until greater competition drives down the cost of the insurance.

Commission deputy chairman, Peter Davis, said that lack of competition had arisen because policies are sold alongside loans, credit cards and mortgages, at the point of sale, without the customer having the chance to shop around and that this had led to high prices.

Many customers also do not realise that the insurance is often bundled into the cost of the loan and many are unaware of policy exclusions regarding employment status and medical history which might preclude them from making a successful claim.

Competition Commission deputy chairman, Peter Davis,  said that PPI providers were not competing either on price or quality of the product. “Neither do they appear to do much direct advertising of PPI to win customers from each other,” he said.

Mr Davis said the Commission would have to do further work to decide on remedies to the lack of competition.  But given that the PPI market has been under investigation for over two years, consumer groups expressed dismay that the Commission required further time.

But the report does suggest that advertising and marketing material should be in a standard format so that policies are more transparent and easier to compare. Policies should also be renewed annually, with customers being given an annual statement showing the policy’s cost, allowing them to can shop around and cancel the policy, if necessary.

The Financial Ombudsman Service has seen an upsurge in PPI complaints over the last year,  80 per cent of which have been upheld in favour of the consumer.

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Financial Ombudsman sees upsurge in complaints

May 29, 2008 | posted by Pam Atherton in Banking, Credit Cards, Insurance, Investments, Loans, Mortgages, Pensions, Store Cards | comments (0)

There has been a 30 per cent rise in the number of complaints made to the Financial Ombudsman Service (FOS), with a total of 123,089 formal complaints being made in the 2007-08 financial year.

The increase was attributed to a surge in complaints about bank charges (31,618) and payment protection insurance (PPI) generating 10,652 requests for compensation.

This  followed widespread publicity about banks being sued in the county courts over excessive overdraft charges and an OFT investigation into PPI mis-selling.  Other major sources of discontent were credit cards (41,123) and mortgage endowments (13,778).

But the FOS stopped dealing with overdraft charge complaints in July 2007, following an agreement between the banks and the Office of Fair Trading that all new cases should be stayed until legal issues surrounding the fairness of overdraft charges case were resolved in the High and Appeal Courts.

As a result, 14,000 bank charge complaints are pending at the FOS and are unlikely to be heard until late 2009.

As for PPI claims, Which? magazine says that as many as two million people may have been mis-sold PPI policies in the past five years, so if you think you have been mis-sold a policy you should contact your lender for a possible refund.

19 per cent of all complaints to the FOS came from claims handling businesses which handle complaints on behalf of consumers in return for a hefty chunk of any compensation achieved. The FOS said that, in some cases, complainants were not being represented properly.

The FOS report says: “In the specific context of pension related complaints involving Serps [the State Earnings Related Pension Scheme], we have seen a significant number of cases this year where some claims-management companies have given consumers unrealistic expectations of large sums of compensation in cash, without appearing first to have properly assessed the actual merits of the individual cases.”

David Cresswell, a spokesman for the FOS says that 80 per cent of PPI complaints to the FOS were upheld in favour of the consumer, compared to only 32 per cent for mortgage endowments. 

For current account and credit card complaints, 84 per cent and 79 per cent respectively were upheld in favour of the complainant, but in other areas, financial services firms’ and providers’ decisions were supported by the Ombudsman.

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Banks in the dock over PPI cover

May 28, 2008 | posted by Pam Atherton in Banking, Credit Cards, Loans, Store Cards | comments (2)

The Competition Commission is expected to issue a damning rebuke next month to the UK’s largest banks over their sales of payment protection insurance (PPI).

The Commission, which is due to publish its report in early June, is expected to accuse the banks of making excessive profits from PPI sales and that they have used these to subsidise cheap personal loans.

PPI is insurance to help individuals pay off personal loans, credit cards and mortgages if they are unable to work due to sickness or unemployemnt.

But it is often mis-sold to people such as as the unemployed, self employed and casual workers who are not normally eligible to claim. The cover is also expensive and only lasts for 12-24 months. There have been complaints about PPI being automatically included in personal loan quotations, without customers’ permission.

The Competition Commission is expected to announce sanctions early next month against the banks for the £1.5bn of allegedly excess profits they have made from the sale of PPI.

It is also expected to say that the sale of PPI is uncompetitive because it is sold to a captive market whereby customers havelittle choice but to buy it from the bank offering them a loan.

If the banks are forced to sell PPI separately or banned from selling it altogether, they are expected to recoup the lost revenue elsewhere, including increasing the interest rates they charge on personal loans.

The market is worth £5.5bn a year and in a provisional announcement earlier this year, the Competition Commission accused the banks of making profits of £1.5bn in excess of a reasonable rate of return for selling this product.

The Financial Services Authority has already fined a number of companies for PPI mis-selling, including HFC bank, an HSBC subsidiary and Land of Leather.

The Competition could impose various sanctions on the banks next month, including setting a price cap, banning banks from selling PPI or introducing more transparent sales practices.

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit

Banks to appeal against overdraft judgement

May 21, 2008 | posted by Pam Atherton in Banking, Credit Cards, Loans | comments (0)

Most of the UK’s largest retail banks are set to appeal against a recent court ruling on overdraft charges in a move that could result in years of litigation before the issue is resolved.

The Office of Fair Trading brought the case against eight major retail banks following claims for compensation from hundreds of thousands of bank customers about overdraft charges for bounced cheques and unauthorised overdrafts which could be as much as £30 per item.

Many complainants succeeded in winning compensation in the county courts but the deluge of cases brought chaos to the legal system and because county court judgements  do not set a legal precedent, each case had to be heard on its own merits.

Eight high street banks, including HSBC, Barclays and Royal Bank of Scotland, will seek permission tomorrow to appeal against the recent High Court judgement that overdraft charges are subject to unfair consumer contract regulations.

If the High Court judgement is upheld, the OFT would have the right to impose a limit on banks’ overdraft fees. To date, the OFT has not said what it would regard as a fair level of charges, but in 2006, it capped late credit card payment charges at £12.

Industry experts believe that a similar cap on overdraft charges would result in the loss of £10bn a year in revenue and that banks might seek to recoup this by charging customers for in-credit banking and other services.

Consumer groups, such as Which? magazine have argued that the overdraft charges levied by the banks are excessive, given that the cost of dealing with bounced cheques and unauthorised overdrafts is around £4 per item.

Anyone who has an existing compensation claim on hold will have to await the outcome of the litigation.

Bookmark this article: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • blogmarks
  • BlogMemes
  • Reddit
Next Page »