Credit card companies urged to cut rates

November 28, 2008 | posted by Pam Atherton in Credit Cards, Store Cards | comments (0)

The government is urging credit card companies to reduce the interest rates they charge on credit cards, following a meeting with Business secretary, Peter Mandelson, earlier this week.

The meeting was organised by Prime Minister Gordon Brown after the government said it was concerned that card rates were not falling, despite the recent 1.5 per cent cut in Bank rate to 3 per cent.

Research conducted by Defaqto banking consultant, David Black, earlier this month showed the average interest rate charged on a credit card rose to from 17.2 per cent in May 2008 to 17.6 per cent in November.

In the last month alone two big players in the credit card market have been guilty of increasing the rate of interest for purchases. HBOS Plus Mastercard rates have risen from 15.9 per cent to 16.9 per cent (tier one) and from 17.9 per cent to 18.9 per cent (tier two), while Abbey’s Mastercard/Visa credit card has hiked purchase rates from 15.9 per ecnt to 18.9 per cent.

HBOS has also recently increased its balance transfer fee from 3 per cent to 3.5 per cent (equating to an extra £9.34 on the average balance transfer.

There were 7.9 million balance transfers made in 2007, with an average balance transfer of £1,867 according to the UK payments association,  APACS. With an average balance transfer fee 2.79 per cent, the average cost would have been £52.09, or £56.01 at 3 per cent, or  £65.35 at 3. 5 per cent (£9.34 more).
 
Although two in three people pay off their credit card bills at the end of each month and are effectively enjoying interest-free credit, he wanted to see more assistance given to those who get into trouble making repayments.

This could include a two-month moratorium whereby people would not be chased for debts if they were in organising a repayment plan with the help of independent debt advisers. Any changes would be written into a voluntary code of practice.

The Bank of England said that in the third quarter of the year £33.2bn was spent on credit cards, while £31bn of repayments were made.

Find the best credit card deals for balance transfers, purchases and standard credit cards:
http://www.defaqto.com/consumer/credit-cards/0-percent-on-balance-transfers.aspx
http://www.defaqto.com/consumer/credit-cards/0-percent-on-purchases.aspx
http://www.defaqto.com/consumer/credit-cards/best-buys/standard-credit-cards.aspx

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Credit card companies called to account

November 13, 2008 | posted by Pam Atherton in Banking, Credit Cards, Store Cards | comments (0)

The Prime Minister has stepped into the row over credit card charges by calling on the industry to adopt a more responsible approach to lending. 

Card company chiefs can expect to be hauled into Downing Street to account for their actions as research this week revealed brazen increases in credit and store card charges, despite the near halving of base rate since May.

According to Defaqto research, the average annual percentage rate (APR) for credit cards has risen from 17.2 per cent to 17.6 per cent since May - at a time when base rate has fallen from 5 per cent to 3 per cent.

One of the worst examples is the NatWest credit card which has hiked its APR  from 13.9 per cent to 16.9 per cent for purchases.

Card companies have not only been increasing interest rates for purchases, but  have been quietly tweaking their terms and conditions, to the detriment of their customers.

For example, some providers have reduced the number of interest-free days before cardholders start incurring interest, while others have increased balance transfer and cash withdrawal charges.
 
Nearly a third (30 per cent) of the credit card market (44 out of 145 cards) have cut the interest-free period for new customers from 56 to 50 days, at a cost to cardholders of £3m.

91 per cent of balance transfer cards now levy a fee, compared to just 29 per cent in 2005. Balance transfer fees have soared from an average of £11.02 per transfer in 2005, to £52.09 today. An estimated 7.9m balance transfers are carried out each year, costing cardholders £412m.

In 2005, the average APR for cash withdrawals was 21.22 per cent APR, compared to 29.97 per cent today, costing cardholders £161m a year in interest.

The charges levied on store cards are even worse. The average APR on 33 store cards from high street retailers such as Argos, House of Fraser and Marks & Spencer has increased from 24.5 per cent 25.4 per cent between May and November this year.

Defaqto’s banking consultant, David Black, attributed the increases to card companies’ need to recoup losses incurred elsewhere due to fraud, bad debts and restrictions on the sale of payment protection insurance.

Politicians have expressed concern that at a time of rising unemployment and the current credit squeeze, hard pressed consumers will turn to using their credit cards to raise emergency cash.

Check out the Defaqto best buy tables for purchases:
http://www.defaqto.com/consumer/credit-cards/best-buys/0-percent-on-intro-purchases.aspx

Best buys for balance transfers:
http://www.defaqto.com/consumer/credit-cards/best-buys/0-percent-on-balance-transfers.aspx
 
Standard credit card best buys:
http://www.defaqto.com/consumer/credit-cards/best-buys/standard-credit-cards.aspx

Try out the Defaqto credit card calculator:
http://www.defaqto.com/consumer/credit-cards.aspx

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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

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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

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Squeeze on mortgages continues apace

June 2, 2008 | posted by Pam Atherton in Banking, Mortgages, Store Cards | comments (1)

High end mortgages are becoming increasingly difficult to source as banks continue to tighten their lending criteria.

Borrowers wanting mortgages of £500,000+ are being squeezed out of the market or having to pay higher rates and fees to secure high value loans.

Abbey has reduced the maximum it will lend to £500,000 (from £7.5m), Intelligent Finance has a new limit of £750,000 and Nationwide and Chelsea have a cut off point of £500,000.

Banks which are still willing to lend £1m or more include Barclays, Halifax, C&G and Bank of Scotland. However, some such as Barclays, will impose a hefty arrangement fee, typically £5,000 per £1m, but Halifax  can charge up to £40,000 for a £2m mortgage.

Mortgage brokers are increasingly advising high net worth clients to go to private banks, such as Bank of Butterfield and Coutts, which will typically charge 1-1.5 per cent over base rate, depending on the individual’s creditworthiness and the loan-to-value. 

An interest rate of 6-6.5 per cent is reasonably competitive in today’s market so this route may be worth investigating. But to become a customer of a private bank, you will need net investable assets of at least £500,000.

Elsewhere, news from the mortgage market doesn’t get any better. Today Bradford & Bingley, the buy to let lender, announced a profits warning, the resignation of its chief executive and the discovery of a mortgage fraud. It is therefore scaling back its rights issue to £250m at a price of around 50p.
The only good news is that US private equity firm, Texas Pacific Group, is taking a £150m stake in B&B.

The fact that such a savvy investor is willing to invest in the ailing bank at this juncture may indicate that it is  calling the bottom of the market for UK mortgage lenders.

Let’s hope so.

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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.

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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.

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One in two at risk of bank fraud

May 19, 2008 | posted by Pam Atherton in Banking, Credit Cards, Store Cards | comments (0)

The risk of credit card and bank account fraud has reached epidemic proportions, as one in two people fail to take basic security precautions when using their plastic and banking online, according to a Which? magazine survey.

Around 50 per cent of those questioned admitted to using the same PIN for more than one card, failing to check that a website is secure before shopping online, or using their mother’s maiden name as a password. One in seven respondents admitted to writing down their PINs and passwords.

But in other respects, there were signs that most people are now aware of other common fraud risks, with the majority shielding their PIN from ‘shoulder surfers’ at cash points, checking statements for rogue activity and shredding statements and other paperwork carrying personal data.

If you fall victim to bank fraud, the maximum you are liable for is £50, providing you have not behaved negligently or recklessly, such as by divulging your PIN to a third party. If this is the case, you might find yourself liable for the bulk of the loss.

On the store card front, Which? magazine has found that some store cards are still charging penalty fees of more than £12, despite an Office of Fair Trade ruling in 2006 that if a cardholder makes a late payment or exceeds their  credit limit, the penalty fee should not  exceed £12.

The guilty parties are Clydesdale Financial Services (now known as Barclays Partner Finance) which issues cards for Jessops and Hobbs and was found to be charging penalty fees of £22.50.

Other culprits include Monsoon (£15) and the Duet store card (£20), operated by Creation Financial Services and which can be used at Carphone Warehouse and JJB Sports.

To reclaim unfair default penalties like these, there are template letters at www.which.co.uk/bank charges.

If you want to report your experience of rogue penalty fees to the OFT, go to www.oft.gov.uk

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FSA continues crackdown on PPI mis-selling

May 15, 2008 | posted by Pam Atherton in Credit Cards, Insurance, Loans, Store Cards | comments (1)

The Financial Services Authority  has fined furniture retailer, Land of Leather, £210,000, as part of its ongoing investigation into the mis-selling of lucrative payment protection insurance policies to individuals who might be ineligible to make a claim.

The fine, the first to be issued to a high street retailer, was due to Land of Leather allowing sales staff to sell PPI without adequate training which led to cover being sold inappropriately for nine months until February 2007.

The mis-selling was discovered as a result of a random investigation and not due to complaints from customers. The FSA has issued a warning that other retailers should take heed of the fine and that they are subject to the same sales standards as firms whose principal business is financial services.

Land of Leather’s chief executive, Paul Briant, was also fined £14,000 for failing to properly oversee sales practices.

The FSA has visited hundreds of institutions in the last few years in its crackdown on PPI mis-selling which usually occurs because the customer is too old to claim or is unemployed, self employed or a temporary worker.

The typical claim rate for PPI is around 25 per cent. But of single premium PPI complaints made to the FSA, around 80 per cent are upheld in favour of the consumer, more than for any other form of insurance.

Land of Leather is to write to all customers who bought a policy on or after 1 November 2006 to clarify its policy terms and ask customers to reconsider whether their policy is suitable for them.

The FSA said that the 8,200 people who bought a PPI policy from Land of Leather and did not pay off the amount owing within 12 months would have paid an average of £380 for their policy and might have been mis-sold.

If you do not hear from Land of Leather, contact the Financial Ombudsman Service. Details of how to complain are on the webiste: www.financial-ombudsman.org.uk

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HFC case raises prospect of class actions in the UK

May 7, 2008 | posted by Pam Atherton in Banking, Credit Cards, Insurance, Loans, Mortgages, Store Cards | comments (2)

It looks as though class action litigation could become a reality in the UK in the foreseeable future.

Tens of thousands of consumers are to be encouraged to join a £350m lawsuit against an HSBC subsidiary over the mis-selling of payment protection insurance (PPI).

Law firm, Clyde & Co, is to bring a group claim against HFC bank after it was fined £1.1m by the Financial Services Authority for selling PPI policies without checking whether they were appropriate for the individuals concerned.

Before the case against HFC can move forward, lawyers will have to sign up a group of consumers who bought the insurance policies and who believe they were mis-sold to. The firm plans to use advertisements in The Sun, the Daily Mail and other newspapers to draw attention to the complaint over the next few weeks, a tactic commonly used in US class action lawsuits.

The PPI market has been the subject of intense regulatory scrutiny in the last few years, following accusations that it is expensive and frequently mis-sold to individuals who will never be eligible to make a claim because they are unemployed, self employed or temporary workers.

They are designed to protect an individual’s income in the event of loss of income due to accident, sickness or unemployment and are sold alongside credit cards, personal loans and mortgages.

But PPI is hugely lucrative to the providers who sell it, earning as much as £1,200 from a policy that costs only £20 to sell. The profits are believed to have been used to cross subsidise cheap personal loans, according to the Competition Commission, meaning that borrowers who did not take out PPI have benefited at the expense of those who did.

 HFC sold more than 163,000 PPI policies between January 2005 and May 2007, mostly to consumers with poor credit histories and limited access to financing. At an average cost of £2,000 per policy, Clyde & Co estimates that its claim could be worth as much as £350m.
 

The FSA fined HFC £1.1m in January for failing to maintain adequate systems and controls when selling PPI.  But while legislation outlawing price-fixing and anti-competitive practices specifically authorises consumer bodies to launch group claims in some circumstances, there is no equivalent statutory provision for FSA rulings.

Clyde & Co will have to establish that HFC is liable to consumers for breaching the FSA’s codes of  business conduct, which the firm concedes may be fresh legal territory. Whether the £1.1m penalty, the 12th largest meted out by the regulator, will be sufficient to shame HFC into compensating claimants in  a lawsuit remains to be seen.

But if successful, it will be interesting to see whether a flood of class actions from other groups of aggrieved consumers follows suit.

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