A bad year for loan borrowers, but savers didn’t do much better

December 21st, 2009

Figures out this week have shown that despite all the problems encountered this year by prospective borrowers, this year has also been a turbulent one for savers as well.

The figures show that UK savers had an increasing number of savings products to choose from in 2009 but interest rates were at record lows.

An extra 220 savings products are on the market compared with the start of the year, but the majority have seen rates drop by more than 0.5%.

The financial information service moneyfacts.co.uk has said that only those willing to lock money away in fixed-rate products benefited.

This is because the conservative approach by financial institutions in the downturn has led to demand for savers’ money over a long period.

As a result, the typical interest rate for a three-year bond has risen by 0.64% over the year to 4.1%. For a five-year bond, the average interest rate has risen by 1.3% to 4.63%.

However, typical rates for one-year bonds, Individual Savings Accounts (Isas), notice and easy access accounts have all fallen, whereas demand  for a payday advance has increased.

Those that rely on the income from their savings to supplement their income, such as pensioners, have been the hardest hit, with many having to make changes to their lifestyles as a result.

The low-risk approach by lenders resulted in the interest charges on unsecured cash advance loans – such as credit cards and personal loans – rising by 0.4% over the year.

Unlike on secured lending, lenders have no guarantee of getting their money back. As unemployment continues to rise, the risk of customers defaulting on payments increases and this increased risk is being reflected in higher rates.

Card companies are continuing to offer competitive introductory deals, but appear to be severely limiting who they will accept for such deals.

Signs from the Monetary Policy Committee of the Bank of England lead many analysts to suggest that the problems faced by savers are unlikely to end soon, with interest rates being kept low during the first months of 2010.

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Large losses at a debt management company.

December 14th, 2009

An ironic story has hit the news this week. It has emerged that the Edinburgh-based debt solutions company, Invocas, has reported half year pre-tax losses of more than £1.5m.

Most of the loss was down to one-off restructuring costs, including money paid out after terminating contracts.

Earlier this year, Stephen Lightley stood down as chief executive with the group after just a year in the job.

The company said it had cut staff and overhead costs during the past six months, and at the same time won significantly more work as is easy to imagine during a recession.

The number of people working for Invocas dropped from 164 last year to 143 in September this year.

The company said marketing costs fell by 11% as steps were taken to cut advertising spend, management positions, call centre roles and agency fees.

The work won during the six months to September increased by 16% to £3.2m and the number of cases won increased to 854.

In a statement, the chief executive of Invocas, David Macmillan, said he believed economic conditions would continue to favour the debt industry. “We are anticipating increased levels of corporate insolvencies as a consequence of recessionary pressures on consumer and corporate spending and more aggressive tax recovery tactics by HMRC, and see little prospect of the overall level of personal insolvencies reducing in the foreseeable future.”

Apart from the moral ambiguity of many companies in the so called ‘debt industry’, the losses at Invocas clearly demonstrate how everyone, businesses and individuals, must keep their eyes on their finances because even those that seem the most secure can come unstuck in this economic climate.

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The war against bank charges: Is this defeat?

December 4th, 2009

After years of waiting and with the hopes of millions people hanging in the balance, we have all been dealt an unexpected and crushing blow. Bank customers hoping to be refunded unfair overdraft charges have been let down by the Supreme Court judgement.

The court has overturned earlier court rulings that allowed the Office of Fair Trading to investigate the fairness of charges for unauthorised overdrafts. At stake in the case, which has run for over two years, is an estimated £2.6bn of annual income for the banks.

Campaigners said they were shocked and disappointed with the decision.

Unsurprisingly, the Banks have welcomed the ruling and pointed out that there have been major changes to current account packages recently that mean these unplanned overdraft fees could be avoided.

Seven banks and one building society wanted the court to overturn two previous rulings that said the OFT had the power to investigate unauthorised overdraft fees. Those who received payments from banks before the test case started will keep their money, because these pay-outs were made as “goodwill gestures”.

All new claims against banks were effectively suspended in July 2007 when the OFT and the banks agreed to stage the test case to see if the overdraft charges were legal or not.

The OFT has previously said that even if it lost, it would still try to use other powers, perhaps by instigating a full Competition Commission enquiry, to attack overdraft fees.

In explaining his ruling, the Supreme Court’s president Lord Phillips said that bank customers agreed to pay overdraft charges as part of the price of having a current account, so they fell outside the scope of the 1999 consumer contract regulations.

But Lord Phillips added that this was not the end of the matter as the OFT could still try to scrutinise bank charges under other parts of the regulations.

The judge did not give any explicit guidance as to how the judicial authorities should deal with the frozen cases.

Later the Judicial Communications Office said that each case would be considered on its merits by County Court judges. It has effectively said that people should apply to the court if they want their cases restarted, but there is no guarantee that they will succeed. Banks might also apply to have cases thrown out.

However, it said the Supreme Court judgement was quite lengthy so it could take some time for customers and the banks to decide what to do.

The Supreme Court ruling will come as a bitter blow to the consumer organisations who have campaigned against what they considered to be unfair overdraft charges. The Court said it would not allow an appeal by the OFT to the European Court of Justice.

The OFT said that it was “disappointed” with the judgement, it will now consider its options and will another announcement in December.
Research by the OFT published last year found banks earned around a third of their retail revenues from unarranged overdraft charges that were “difficult to understand, not transparent, and not subject to effective consumer control”.

The British Bankers Association, which represents the banks, says that it considers the decision as a “clarification of the law” rather than a “victory”.

So, in the war between ordinary people and greedy, grasping, faceless banks, a battle has been lost. It remains to be seen, however, if the war is now over.

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