CREDIT CARDS

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Barclaycard, Lloyds TSB and HSBC have all announced they are nearly halving their penalty charges from £20 to £12 following an investigation by the Office of Fair Trading (OFT). But Barclaycard also confirmed plans to increase the interest rate on cards used by one in ten of its customers. The reduction in fees follows a report by the OFT that said consumers were being over charged by £300 million a year in unlawful credit card penalties. The OFT says penalty fees should only be used to recover administration costs.

The report claimed that the charges had been set "significantly higher" than was legally fair and called on all card issuers to recalculate their penalties. OFT added that it would consider penalty charges of more than £12 as unfair and would challenge offenders in the courts. The OFT has said the same principle would eventually also apply to default charges on overdrafts, store cards and mortgage products.

Robert Kenley, the head of credit cards at moneysupermarket.com, the price comparison website, said, "Our research shows that the average penalty charge is currently £22.68, so a reduction to £12 is effectively a 47% cut in revenue. So, providers faced with having their income from penalty charges cut by half will have to look elsewhere for the money to recoup their financial losses, and this ultimately means some consumers could still lose out.

So far, the other major credit card providers including Halifax and NatWest and the Royal Bank of Scotland, have not reduced their fees. Claire Whyley, deputy director of policy at the National Consumer Council, said, "Credit card providers have been profiting from unfair penalty charges for years. We’re appalled that some of them are so reluctant to comply with the OFT’s new ruling." (Source: Times Online, Jun/06)

They entice customers with racy products in a range of exciting colours. But when things go wrong, their shiny offerings can turn out to be financial nightmares riddled with hidden costs and useless extras. It may sound like the offering of a dodgy car salesman but according to consumer campaigners, this is the risk run by anyone who dabbles in Britain's £180bn credit card and personal loan industry. A report by Which? magazine published today accuses banks and loan companies of using dubious sales practices and excessively high charges to boost their profits from Britain's 50 million credit card holders and loan holders.

The organisation highlights what it claims is a series of unacceptable practices, from high penalty charges for late payments to hard-selling insurance policies, which mean consumers are being exploited regardless of whether their plastic is gold, platinum or carries a novel design. Which? is calling for measures to force the industry to end tactics such as unsolicited credit limit increases to end a boom in debt problems.

Malcolm Coles, the editor of the magazine, said, "The credit industry has an alarming number of tricks up its sleeve to wring every last penny it can out of its customers. Lenders seem to have no qualm about persuading people to take on more debt than they can afford and they'll carry on doing it as long as they can get away with it." Plastic cards, both debit and credit, overtook cash as the nation's favourite form of payment. Personal debt now stands at £1trn in Britain, of which £180 bn is held on credit cards and personal loans.

The Citizens' Advice Bureau has reported a 74% increase in the past seven years in people seeking its help with debt problems. The Which? study, which said it accepted customers found credit cards "convenient and popular", accused companies of finding ingenious ways of boosting their profits in a competitive environment. It cites the charge of £20 to £25 made by most companies when a customer fails to make a payment or goes over their credit limit. A survey found one in four credit-card users received such a charge at least once last year, netting the industry an estimated £427m a year.

The report claims that the charges are excessive because letters informing customers of the penalty are generated automatically and the charge is added to the next month's bill. It also criticises the selling of payment protection insurance (PPI) with personal loans, which is designed to meet monthly payments if the debtor can no longer work. Describing such policies as "expensive", offering limited cover and potentially "useless" for the self-employed, Which? found they were also not sold properly and represented poor value for money.

Researchers found that PPI was often included automatically on loan quotes and many companies failed to state that the non-compulsory insurance was included. Adding PPI to a £5,000 loan from one high street bank was found to cost £1,020, almost as much as the interest charged on the loan itself. The result, according to Which?, is that loan companies make an estimated £1bn a year in commission on the PPI policies. The report lists a catalogue of "sneaky tricks" which it claims are used by the credit industry to boost profit margins at when interest rates are low.

But the body representing credit card operators said the report was out of date and failed to explain the basis for some of its claims. The Association for Payment Clearing Services rejected the figure of £427m made from late payment fees, saying that the £20 to £25 charge reflected real administration costs from which companies were banned from making a profit. A spokeswoman said, "This report makes no recognition of the development of summary boxes which set out upfront the costs of each card upfront." (Source: The Independent)

Banks and credit card companies are exploiting obscure legal powers to seize the homes of thousands of people who cannot pay their credit card bills. In some cases, people owing as little as £1,000 have been served with charging orders, the legal instrument enabling a creditor to order the sale of a property. The practice has emerged days after Yvette Cooper, chief secretary to the Treasury, called on banks to do more to allow people to keep their homes. According to the Ministry of Justice, 97,026 charging orders were granted by courts in England and Wales last year, a tenfold increase since 2000. They allow financial institutions to order the sale of a property to pay off unsecured debts on credit cards, personal loans, store cards and car finance.

Nationwide, the building society, and Northern Rock, which was nationalised earlier this year, are among the most aggressive in using the court orders. Mark Sands, head of insolvency at KPMG, the accountancy firm, said, “When people took out the loan or the credit card, they were almost certainly not told that their home was at risk if they failed to keep up with repayments.” From next year banks will be given further arbitrary powers because they will no longer need to secure a county court judgment against a defaulting debtor. They will be able to move directly to seek a charging order after two or three months of missed payments.

Vince Cable, the Liberal Democrat Treasury spokesman, said, “No one should be allowed to lose their home simply because of a credit card debt. More needs to be done by the government to ensure that lenders simply do not act overzealously, and only take possession of properties as a last resort. The fact that banks can now kick people out of their homes for not keeping up with their unsecured debts is very worrying.”

Alex McDermott, social policy officer at Citizens Advice, said the government had presided over a hidden scandal, because homes repossessed in this way did not appear in the official statistics issued by the Council for Mortgage Lenders. Northern Rock confirmed it used charging orders where customers had missed payments on unsecured loans, saying, “Any application for a charging order on an unsecured loan is in strict accordance with the Consumer Credit Act.” (Source: Times Online, Oct/08)

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