UK Credit card spending restrained

July 23rd, 2011

The British Retail Consortium (BRC), which represents 90% of the UK’s shops and shopkeepers, this week said that credit card use fell last year as people turned to cash and debit cards to avoid borrowing.

The figures show that the number of transactions involving credit cards dropped 12.9%. The number of transactions involving cash also fell, although the average amount spent rose by 13% to £12.93. Debit card use jumped by 15.8%.

The BRC criticised the level of bank charges associated with credit cards, pointing out they are the most expensive payments they have to process.

On average in 2010, each retailer paid 1.7p per cash transaction to have the money transported and banked. The BRC said that the average charge for processing a credit card payment was 37.1p, compared with a debit card average of 9.2p.

Credit cards were used in just 10% of all transaction, but accounted to more than 44% of processing costs.

The BRC added that cash was the quickest way to pay. Using physical money took an average of 27.2 seconds, it said, compared with an average 39.4 seconds for a card payment.

The BRC’s annual Cost of Payment Collection Survey includes results from nearly eight billion transactions in store and online, 60% of the UK’s annual retail sales.

Retailers reported fraud losses had fallen by 37% compared with 2009 after investment in technology, such as the latest secure card readers, new levels of internet security and note checkers at tills.

The general trend with consumer spending is that hard-pressed customers are switching to cash and debit cards for the reassurance that they can’t spend what they haven’t got. This is why the use of credit cards has dropped sharply and cash still remains king, used for more than half of all retail payments.

It remains to be seen if this trend continues as the economy continues, but for now it seems that people are taking a much more sensible approach to their spending and levels of debt. Let’s just hope that these habits stick this time.

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OFT moves to tackle credit scams

July 17th, 2011

The Office of Fair Trading (OFT) this week announced plans to tackle dishonest credit brokers that demand upfront fees for loans they have no intention of arranging. Firms found engaging in the scam practice will be closed down for the protection of consumers.

The measure is part of a general crackdown by the regulator following a complaint from Citizens’ Advice that said some unscrupulous firms were cold-calling thousands of potential borrowers and offering loans in return for hefty fees.

Evidence suggests some businesses are deliberately taking people’s money upfront with no realistic expectation of finding them the type of loan they need. To combat this, the OFT is making it mandatory for fees to be refunded if a loan is not agreed.

The OFT is going to ask the government to consider changing the law to ban outright the practice of credit brokers demanding upfront fees in exchange for arranging loans.

Citizens’ Advice had complained, in a so-called “super complaint”, that many people had received a text message or telephone call from these firms offering to find them an unsecured loan. Those who accepted were then charged the fees for little or no service in return.

The OFT estimates that 270,000 people had paid upfront fees to credit brokers in the past year, with complaints about them doubling between 2008 and 2010, an upfront fee of £70 was not uncommon, but the organisation had come across charges of up to £300.

The firms in question typically specialised in arranging unsecured loans for people who found it hard to borrow money because of their low incomes or past problems repaying debts.

Some victims, Citizens’ Advice said, had been persuaded to hand over their bank details and later found that money had been taken from their account without their permission. Victims struggled to get somebody to deal with the issue, and were charged a premium rate when calling to complain.

In parallel, the OFT will bring in new rules later this month for debt management firms to stop them making misleading claims in adverts, charging expensive fees upfront, giving poor advice or posing as charities.

As well as threatening to close down rogue credit brokers, the OFT is consulting on changes to its own rules to make it clear that borrowers already have a right in law for their fees to be refunded if the credit broker fails to introduce them to a potential lender and, if an introduction is made but a loan is not granted within six months, the fee must still be repaid.

The consumer minister Edward Davey welcomed the OFT’s proposed changes and has promised legislative action if required to back up the consumer protection initiative. Analysts have welcomed the moves as important steps to protect vulnerable consumers but pointed out that it will require continued vigilance as new loop holes will always be found by criminals and unscrupulous brokers.

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Debt written off after bank ‘imprisons’ customer

July 9th, 2011

In one of the more bizarre financial stories of recent weeks, HSBC bank has been forced to write off a customer’s overdraft after a judge decided it had harassed her with hundreds of phone calls and then unlawfully imprisoned.

The lady won her civil case against the bank at Swindon County Court when the judge ruled that the overdraft of £2,070 should be cancelled as HSBC had failed to meet its contractual obligations to her. The disputed clause was that the bank should run customer accounts with “reasonable care and skill”.

The customer had gone to her local branch of HSBC in October 2008 to complain about the overdraft fees it had been levying on her account. When she became upset and wanted to leave the interview room, which had been locked from the inside for privacy, the branch manager stood up and blocked her way.

According to the judge, that behaviour crossed the threshold to the level of unlawful imprisonment. However, leading up to that incident there had also been sustained telephone harassment.

Between 2008 and 2009 HSBC called the customer hundreds of times many calls were generated by automatic dialling equipment and were silent while on other occasions members of staff threatened the lady and said that the phone calls would continue until she paid off the overdraft.

The telephone calls continued for a year even after HSBC promised they would stop as a result of a first complaint against the company. The calls eventually only stopped when the customer began legal proceedings against the bank.

Additional complaints against the bank noted that they did not freeze the account when asked to do so, allowing further payments to make it even more indebted. Aditionally, HSBC failed to tell the customer when she opened the account what the overdraft fees would be, which was a direct breach of contract.

HSBC said it was sorry for the stress it had caused the customer and expressed regret for the way it had treated her and her difficult financial situation. While not all the complaints against the bank were upheld, the judge noted that the bank had control of the phone calls and could have made them stop at any time, in particular after it indicated that it would do exactly that.

The judge ordered that the customer’s overdraft be cancelled and indicated that, had the customer applied for damages, she would have been awarded an extra £1,500.

The campaign website penaltycharges.co.uk, which helped the customer in this case, said: “We need legislation to stop unlawful bank charges, as all parties promised before the last election. Harassment of customers in difficulty seems to be routine for many financial institutions and regulators seem to take very little notice.”

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