Proposed changes to the way credit card providers can operate

The long overdue revue of the way credit card companies operate in Britain has finally happened. This week saw the announcement by Consumer Affairs Minister, Kevin Brennan details the Government’s proposals to combat the nation’s credit card debt. That said, £2billion has been paid off in the last 12 months, resulting in an overall reduction in credit card debt from £66billion to £64billion.

The aim of this Government initiative is to ensure the providers of credit cards do not take advantage of their customers who find it difficult to clear their accumulated balance. As an industry the credit card market is worth £53billion per annum. The practices used by most of the credit card companies have contributed to us earning the unenviable reputation as the “debt capital of Europe”.

Credit cards were never designed to carry a balance for any length of time and with an annual interest rate averaging out at nearly 20% it is obvious why you should not carry a balance on a card. Yet a major industry has been allowed to spring up around this i.e. balance transfers. If anything this proposal has come over a decade too late.

The proposed changes include:

• Higher Minimum Monthly Payment of 5%

Presently most credit card providers take a minimum monthly payment in the region of 2% of the outstanding balance. If you take an average card with an APR of 18% and a minimum payment of 2% it takes well over 16 years to pay off a balance of £2,000 if you only pay the minimum monthly payment.

However, if the credit card companies raise their APR to offset this, we will be no further forward.

• Customers to pay off the most expensive debt first

Credit card providers (with the exception of Nationwide and Saga) choose to pay the least expensive debt off first, an action that is in their favour not the consumers. This is known as “Adverse Scheduling”, so if you take cash out on your credit card which is charged at the higher rate this is the last element of the debt that will be paid back.

• Automatic credit limit increases to be banned

Stop the practice of routinely increasing the available credit to the customer without their prior consent. It is common practice within the credit card industry to increase the borrowing limit of a customer over time as long as they have no late payments or arrears. The credit card company does not assess their current financial situation or their ability to afford the new borrowing.

• Annual Statement of Interest

All other forms of consumer credit must provide an Annual Statement of Interest, at present credit card providers do not have to. This new measure is intended to ensure that every customer is aware of just how much the debt carried as a balance on a credit card is costing them annually.

There has been some concern raised by debt charities and consumer groups about the proposals as they fear that these measures may tip a large number of customers over the edge. This is a real possibility for some but ultimately the issue of credit card balances has to addressed, as carrying a large credit card balance or two is the one thing that will keep you poor.

In an ideal world http://www.thebestbestbuys.com/ would have liked to see at least one other measure put in place:

• Central Register of Credit Cards

A central database would stop people being able to have numerous credit cards and therefore the ability to run up huge balances with different credit card providers. It would also hopefully stop the next generation of credit card customers falling into the same debt cycle that many in Britain face today.

Only time will tell if the proposals that have been outlined will ever become reality. The proposals are a good start but they could have gone just a little further. It will take a very long time to re-educate people not to live beyond their means. Let’s hope it doesn’t take as long as it does to pay off a credit card balance using the minimum monthly payment.

If you want more information regarding credit cards, you can find a “Guide to Credit Cards” on our website, http://www.thebestbestbuys.com/

The Economists and the City Experts get it really wrong this time!

The word on the financial street was that Britain was today going to officially come out of recession. Just to clarify that is the “technical recession” as measured 3 months too late by various Government bodies and not the actual recession that we are all living through. We were going to join France and Germany in reporting growth in the economy.

All of the Business Analysts and Reporters have been banging on about this landmark in the move out of recession. They have been quoting various economists and city commentators, they all seemed very excited and very upbeat.

Ooops! The figures came in at around 9:30am today and guess what......they all got it wrong, again.

In actual fact the economic data shows that we are still very much in recession and consumer spending has not returned. The two most worrying elements of today’s news are firstly the construction industry is still struggling and secondly the demand for services from the consumer market has yet to return.

For the record we were always going to lag behind the likes of Germany and France as the British economy was far more reliant on the financial sector for its economic growth. As the current crisis is very much centred on the collapse of the global financial system it shouldn’t take a genius to work that out.

As this whole thing goes on it is becoming more apparent that our economy is run by IDIOTS! And the journalists that report on it are just as bad. Did nobody think to analyse even the anecdotal evidence?

For example, mortgage approval rates are improving but only slightly and are nowhere near previous levels, credit card spending is down, credit card approval are down, the savings ratio is up, estate agent windows still look bare, shops are closing, the fear of redundancy still hangs over many jobs in Britain, etc.

It is hard to resist the temptation to say, I told you so, so I won’t, I told you so. In more than one previous blog I stated quite clearly that until the end of the first quarter of 2010 any expert that tells the world they know what is happening is talking out of their ear (for want of a much better word).

Energy Best Buy Websites Exposed by The Daily Telegraph

So it is not just financial comparison websites you need to watch out for!

Here is an extract from an article that appeared in the Daily Telegraph on Saturday 10th October 2009:

Kara Gammell reported in the Telegraph's Your Money supplement:

An investigation of comparison websites by Your Money reveals there can be more than 50 per cent between the cheapest and the most expensive "best buy" energy deals.

"The banner at the top of the webpage read: "Accredited by Consumer Focus, which means that our prices are the same as other comparison websites."But when I went shopping for a cheaper energy tariff, that didn't appear to be the case at all.In a bid to reduce my energy bills this winter, I visited four leading comparison websites, Confused, uSwitch, GoCompare and Moneysupermarket and was shocked to find different results from each."

All four of the aforementioned comparison websites are accredited by the Consumer Focus Confidence Group (it actually sounds made up) which in theory means each of the sites should return similar results.

Turns out they all calculate things slightly differently and you need to put in your exact energy consumption by units in some cases.Sounds like a fair bit of flannel to me, surely if you are putting in similar data to similar websites the results should not differ by a huge amount but in this case the highest quote was £680 and the lowest was £431 a huge difference of £249.

But I have saved the best till last, the most expensive quote which was provided by uSwitch was actually more expensive than the customer pays at the moment. I can only assume the journalist decided to go with Confused.

The lesson to be learned here is that no matter if you are using a financial comparisons website or one that deals with utilities you should always use at least two or three different websites to check your findings.

Another thing worth remembering is that each of the sites mentioned has a Consumer Finance or Money element to them. They say they offer the best deals on mortgages, credit cards, savings and loans but can you trust them in light of what The Daily Telegraph have reported? You can make your own mind up on that one.

Here at http://www.thebestbestbuys.com/ we will keep monitoring the big and the small alike and we will only bring you the best best buys in the UK for mortgages, loans, credit cards and savings.

What to watch out for when you are transfering a balance from one credit card to another

If you are in the unfortunate position where you have to transfer the balance of one credit card onto another credit card there are a few things you need to be aware of:

1) There will be a fee of about 3% based on the balance you are transferring

2) How long is the deal for? Is it a date or a set period of months?

3) How high is the interest rate (APR) when the deal is over?

4) If you miss one monthly minimum payment the deal may be void

5) Don't use the old credit card just because you can, REMEMBER, if you cannot be trusted: CUT IT UP!

Credit cards were not designed for long term borrowing but many people find themselves in the situation where they carry credit card debt round for years hardly making a dent in the balance.

They can often end up being the most expensive way to borrow money.

If you want an unsecured personal loan you should pop down the shops

When you are looking for an unsecured personal loan it appears that the retail giants of: ASDA, Tesco, Sainsbury’s and Marks & Spencer have it covered. Three of the aforementioned grocers have been consistently at the top of the best buy tables for a very long time.

There are currently about a third less providers of unsecured personal loans than there was 18 months ago. The rates on offer have been constant and their typical APR has not altered despite the reduction in the Bank of England Base Rate (BEBR). Meaning they are making more money on these products than they did when the BEBR was higher.

In the £5,000 0ver 3 Year category, 3 of the top 6 providers are retailers, while in the £10,000 over 5 Year category we find a similar ratio. It might be worth mentioning the banks that are also in the same charts:

• Your Personal Loan (owned by the Co-operative Bank)
• Alliance & Leicester (owned by Santander)
• Smile (owned by the Co-operative Bank)
• The Co-operative Bank (I assume owned by the Co-operative Bank)

The Post Office pops up but we don’t know whether to class them as a retailer or a bank but then again neither do they.

You can have a look at the top 5 loan rates for both £5,000 over 3 Years and £10,000 over 5 Years at www.thebestbestbuys.com

The Best Best Buys joins Squidoo

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Cheers

When is a loan not a loan? When it is tantamount to "money lending"

I was reading an article in Scotland on Sunday last weekend about the rise in the cost of personal loans. It appears that major lenders have been increasing the cost of unsecured personal loans by as much as 1.2%. Some figures that were quoted suggested that on average a consumer looking for a loan of this type could expect to pay about 10.32%in interest (APR).

Looking at the best buy tables for both, £10,000 over 5 years and £5,000 over 3 years, the top of the market seems to be between 7.9% and 9.9%. This has been pretty constant for a long time. The issue seems to be that because the Bank of England Base Rate is at an unprecedented low of 0.5%, loans should not be increasing as the margin for lenders has widened.....a fair and just point.

This got me thinking about lenders such as Provident Finance or the “Provy” as it is affectionately known. Would you like to take a guess at what their APR on a £300 loan over one year is? To be honest it is so outrageous that I doubt you would guess in a million years.

272%

And before anyone asks, no I haven’t missed out a decimal point.

The Provident’s justification is that they deal in small sums of money, they offer their services through agents calling personally to collect the money and their products offer flexibility. If truth be told they are ripping off the poor. Their customers are low income families without access to high street lenders or mainstream personal finance. It is actually a fairly disgusting business model and all involved should be thoroughly ashamed. Worst of all they are not alone, there are other companies that employ the same deplorable business model

The Office of Fair Trading already has the means to stop this enshrined in the Consumer Credit Act of 1974, whereby it is charged to protect consumers from “extortionate rates of interest”. While the FSA should be tackling issues like this head on, if the OFT is not capable of policing the Consumer Credit Act then the FSA should have sought to take over responsibility years ago. I think it is fair to say that the FSA have missed the boat on this one.

It has also been subject to Parliamentary scrutiny and I am pretty sure they are still debating it through some Select Committee or other. Let’s face it, you don’t need a committee to tell you when something is this wrong.

The solution is quite straight forward the Office of Fair Trading, the Government and the FSA should get off their collective arses and revoke the Consumer Credit Licence of Provident Personal Finance, “simples”, to quote that annoying piece of fur on the telly.