Bad Credit Card Debts Increase
Bad credit card debts may reach as much as 9% of all outstanding balances by the end of next year, an accountancy firm has said.
“Bad debts in the sector have reached historic highs,” according to PricewaterhouseCoopers (PwC). The figure stands at about 6% now.
This comes despite a “cooling passion” for credit cards, with borrowing down 3% to £64bn in the past year.
The number of credit cards in circulation has fallen by 8%, it said.
The past year had been a “tipping point” for the willingness of people to take on more unsecured debt, PwC said in the latest edition of its annual report Precious Plastic.
Total consumer debt including mortgages stayed the same at just under £1.5 trillion.
Within that, unsecured lending via credit cards, bank loans and hire purchase agreements was largely unchanged at £230bn.
But the stock of debt outstanding just on credit cards fell.
PwC pointed out that this new declining trend reflected not only consumer choice, but the decision of card companies to restrict new lending to customers who were more creditworthy.
“The recent announcement by one major issuer that they would not generally seek to acquire new credit card customers without those same customers also holding a current account with them is in stark contrast to the time when credit card issuers accounted for one in every four pieces of junk mail that made it through our letterboxes,” PwC said.
Annual fees
Card companies wrote off £3.2bn because of bad debts last year.
PwC predicted that these losses would rise dramatically to levels never seen before in the UK as a result of rising unemployment, short-time working, and pay freezes and pay cuts.
The accountancy firm forecast that as bad debts rose, the borrowing rates on cards would also go up, and monthly or annual fees would become a standard feature as lenders sought to increase their revenue.
“At the higher end of the market customers will pay for access to premium benefits and at the lower end more marginal customers will be expected to pay for even a standard credit card,” the firm said.
Paul Rodford of Card Payments, the UK cards association, said the easy availability of credit cards would disappear.
“Consumers are going to be faced with the unhappy prospect of a marked reduction in the availability of credit, a reduction in choice of products and an overall increase in charges with both increased interest rates and an expansion of annual and other fees,” he said.
Unfair terms
All aspects of banking have been coming under intense regulatory scrutiny.
Last month, the government published proposals to ban some unfair terms in credit card agreements.
It wants to stop card companies putting up interest rates on existing debts and to stop them raising spending limits without agreement.
It also wants them to ensure that monthly repayments are used to pay off the most expensive debts first, and it wants to raise the size of minimum monthly repayments to speed up debt repayment.
PwC’s report warned that while UK consumers were now borrowing less than before the financial crisis, debt levels in the UK remained high compared with the rest of Europe.
Each UK household has total average debt of about £60,000, made up of about £50,000 of secured debt and £10,000 of unsecured debt, PwC said.
Credit Card Interest Rates to rise in the UK
Lenders’ current business models are ”unsustainable” due to increasing bad debts, funding constraints and the toughest economic conditions for a generation, PricewaterhouseCoopers said.
It said large scale change within the sector was inevitable during the coming few years, with credit cards likely to be transformed from borrowing tools into payment ones.
It added that the interest rates cards charged were likely to be increased, while annual fees charged for just having a card were likely to become a common feature.
At the high end of the market, it expects customers to be charged to have access to premium benefits, while at the lower end, marginal customers will be expected to pay fees for even standard credit cards.
Innovation is also likely to be a key feature of the market, with providers increasingly likely to offer contactless cards, prepaid cards and mobile payments.
The group said total household borrowing had remained broadly constant during the past 12 months at around £1.5 trillion, around £1.2 trillion of which is secured lending, while around £230 billion is unsecured and owed through credit cards, loans and overdrafts.
The average UK household now owes £60,000, made up of a mortgage of around £50,000 and £10,000 of unsecured debt.
As a result, the average household spends around 15 per cent of their take-home pay just on interest payments on debt.
Richard Thompson, partner at PwC, said: ”Over the last 12 months there has been a cooling passion for plastic – credit card borrowing has fallen by 3 per cent to £64 billion and the number of cards in circulation has fallen by 8 per cent.
”Bad debts in the sector have reached historic highs, standing at nearly 6 per cent of outstanding balances. Our analysis suggests that bad debts are likely to continue to rise and could reach 9 per cent by the end of 2010.
”This would have enormous implications for the profitability of credit cards in the UK market. Large scale change within the sector over the next few years is inevitable.”
The group said as the economic recovery gained momentum, consumer demand for credit was likely to return, but lenders were likely to be either unable or unwilling to meet this demand.
Instead they would focus on the customer groups that were most profitable, forcing some consumers towards the ”less mainstream” corners of the industry.
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Credit Card Companies Higher Rates
Under cover of the EU payment services directive, which will come into play on the 1st November, a whole host of UK credit card companies would appear to have sneaked in a number of interest rate rises. Under the payment services directive, credit card and debit card companies have been ordered to simplify their terms and conditions and sent out very thick documents to their customers to review.
However, a number of customers may well have missed a number of increases in interest rates which have not necessarily been highlighted as strongly as they could have been. Both cash advance interest rates and general credit card interest rates have been increased by a number of companies with First Direct and M&S the latest to join the party. So a directive from the EU which was introduced to assist UK credit card holders has effectively backfired and given many companies a “backdoor” way to introduce increased credit card rates.
This comes at a time when UK consumers are attempting to pay down as much of their credit card debt as possible although many are suffering from employment issues and reduced income. Quite how an increase in interest charges will assist customers and credit card companies alike is a mystery because effectively many of those who are struggling will be “pushed over the edge”.
Boliler Room Fraud
When television sound recordist Kris Kalinski got a phone call from investment firm Swiss Management Consulting, it sounded like the financial opportunity of a lifetime. The Zurich-based stockbroker was offering him the chance to buy shares in a company that were about to leap in value.
“They were promising a return of more than 40%,” says Kalinski. “As it happened, I’d just sold my apartment so I had cash in the bank.”
Two years on, his bank account is empty. Virtually penniless, he’s living in a friend’s spare room and has just filed for bankruptcy.
“Swiss Management Consulting ripped me off,” he says. “They ruined me, but the police and financial authorities don’t seem able to do anything about it.”
The nightmare started in 2007, when he bought shares in US companies recommended by SMC, at a cost of more than $245,000 – around £120,000 at the time. But the promised profits never materialised, and SMC disappeared with his original investment.
His situation was made worse because the knock-on effect meant he couldn’t complete the purchase of his new flat – losing another £70,000 in deposits. “I now know SMC for what they are,” he says. “They’re not brokers, they’re a boiler room. In other words, a bunch of villains.”
A boiler room scam is when fraudsters – generally calling from outside the UK – pose as brokers or financial consultants. Using high-pressure sales techniques, they con victims into buying shares for many times their real value. An estimated 30,000 people in the UK are taken in every year and it could be far more – many are too embarrassed to come forward.
Kalinski has decided to go public as a warning to others, and his story is a blueprint of boiler-room fraud. So why does he think he was taken in? “With hindsight, I was foolish and greedy to accept this kind of return was possible,” he says. “The only excuse I can offer is I’ve always had issues about money and security.
“My parents arrived in Britain in 1949 with nothing, just the Red Cross clothes they stood up in. They always worked hard to make their way and I’ve always worked hard as well. I’m freelance, and this offer looked like a way of ensuring my future.
“Looking back they flattered me, and made me think I was knowledgeable. They kept saying things like I was intelligent enough to see this was a good deal. They chipped away at my resistance.”
Eventually, Kalinski started buying the shares SMC’s staff were talking up, transferring money to agents in the US to pay for them.
“I was buying into American companies, so it seemed reasonable,” he says. He only became suspicious when the time came to sell his stock to make a profit.
“Suddenly there were delays,” he says. “SMC said a corporate sale had fallen through and they were trying to organise another buyer.
“Then they asked me for more money, saying it would make it easier to sell if I held more.”
He refused to give SMC any more cash, and finally took financial advice.
“That’s when I found out it was a scam,” he says. “My heart sank and I was in a state of shock. I didn’t sleep for a week.”
SMC stopped returning his calls. Soon after, the phone lines went dead
Guardian Money asked Robert Howard at London broker Charles Stanley to value Kalinski’s shares. He said stock in one company – which cost $97,580 – was worth $39. Another investment, bought for $3,080, would return $3.40. Kalinski’s total portfolio, for which he paid $245,745, is worth less than $3,000.
“Mr Kalinski has overpaid for these stocks, to put it politely,” says Howard. “He’s obviously been ripped off by an unauthorised firm.”
Kalinski first contacted the police and financial authorities in 2008.
“I spoke to the Financial Services Authority,” he says. “It told me there was no compensation because SMC wasn’t registered. The Swiss Federal Banking Commission told me SMC was on its warning list.
“I went to my local police. And, as the money went to the States, I reported it to the US authorities.”
He also went to Operation Archway, a section of the City of London police that deals with boiler-room fraud. “As far as I know, none of these organisations can do anything to bring SMC to justice,” says Kalinski. “I feel like I’ve been palmed off.”
Guardian Money asked if there was any chance of Kalinski getting his cash back. “We are an intelligence-gathering operation,” says Superintendent Bob Wishart of Operation Archway. “We identify subjects and pass on information to partner agencies and foreign law enforcement that may be able to intervene.
“But we do understand the level of trauma that victims like Mr Kalinski suffer. And all the information he gave us about US bank accounts has been passed to the US authorities.”
Wandsworth police told us the matter was outside its jurisdiction, while the US Securities and Exchange Commission said that it was “not able to either confirm or deny the existence or non-existence of any investigative activity”.
The FSA said SMC is on its list of unauthorised firms. It has had eight complaints about the company, the most recent being in February.
None of this is much comfort to Kalinski as he contemplates an uncertain financial future.
“I’m 59 and I’m living like a student again,” he says, “constantly wondering where the next £10 is coming from. But I have to be philosophical. There’s no point jumping off Waterloo bridge with concrete boots on. Maybe if others read this and don’t get taken in, some good will come of it.
“But we do need more action by the authorities against fraudsters like SMC,” he adds. “They’re calculating, callous villains. I won’t let them get away with this. I’ll pursue them privately if I have to.
“In any case, I’ve got my health and I’ve got my friends and loved ones. And right now that’s more important to me than any amount of money.”
Credit Card Fraud in the UK
The amount of money being lost through card fraud fell by 23% in the first half of the year in the UK, as criminals changed their strategies and prevention measures began to take effect, according to figures published today.
The total cost of fraud on credit cards and debit cards fell to £232.8m from January to June, down from £304.2m in the first half of last year, Financial Fraud Action UK (FFAUK) said today.
The cost of counterfeit card crime, where cards are skimmed or cloned, fell by the largest margin from £88.8m last year to £46.3m, which is also below the 2006 level of £52.8m. Internet, phone and mail order crime, known as card-not-present fraud, fell by 18% from £163.9m last year to £134m.
Rumina Hassam, personal finance expert at uSwitch.com, said: “Consumers should do everything they can to protect themselves. One of the easy ways to reduce the risk of fraud is to limit the number of active accounts you have.
“Our research has shown that 16.3 million consumers are holding on to 38m dormant credit cards with a total limit of £200bn, just in case they hit hard times. The two issues may seem unrelated but as many of these accounts could be registered at an old address, these cards are easy pickings for fraudsters.”
FFAUK said it was possible that fraudsters were now focussing their efforts on online banking scams and cards issued overseas. Head of fraud control, Katy Worobec, said: “These latest fraud figures are good news, but we know there’s no room for complacency.”
She added: “Reasons behind this decrease include the increasing use of sophisticated fraud screening detection tools by retailers and banks, as well as the continuing growth in the use of MasterCard SecureCode and Verified by Visa [online payment systems that make cards more secure when shopping online] by both online retailers and cardholders.”
The cost of fraud committed on UK cards used abroad dropped by 45% over the same period, while fraud in the UK fell by 9%. However, there was an increase in the level of fraud on overseas cards used in the UK.
Worobec said: “Although it is difficult to prove, we think that one of the reasons for this dip in card losses may simply be as a result of fraudsters realising that they can prosper more by targeting foreign issued cards, particularly those without chip and pin protection and which currently have stronger currencies than sterling.
“The fact that we have seen a 36% increase in the first half of this year in the amount of fraud being committed on foreign issued cards here in the UK adds some weight to this theory.”
While the cost of most types of fraud on UK cards decreased, two types of financial crime saw significant increases. Card ID theft, in which a criminal falsely applies for a card under someone else’s name or intercepts an existing account and sets up a card at a new address, increased by 23%.
But it was online banking, in the form of phishing emails which ask recipients to enter their security details into bogus bank websites and malicious software which infiltrates home computers, that saw the largest increase, soaring by 55%.
A spokeswoman for FFAUK said this form of fraud targeted consumers directly and was often avoidable.
She said people should make sure they had up-to-date anti-virus software and adequate firewalls on home computers, and should “be as cautious with emails as you would be with a knock at the door”, and never give security details away in response to an email.
Excessive UK Bank Charges
More than 1.1million bank customers have an estimated £1.7billion stuck in limbo because of a freeze placed on complaints over rip-off bank charges.
An investigation has uncovered the first official figures from the City regulator, the Financial Services Authority, revealing the extent of the fightback.
They show how at the peak, banks were receiving one complaint about bank charges every 30 seconds.
But since July 2007 banks have been allowed to put on hold all these complaints.
More than 1.1million have been left stranded until a case between the Office of Fair Trading and the major current account providers is settled.
The latest decision in the case, on an appeal to the House of Lords, is expected next month.
Banks have been given permission to stall customers until January next year.
The Consumer Action Group said: ‘It is a disgrace. Many people are being denied money that’s rightly theirs.’
The consumer fightback began in 2006. Banks were charging up to £39 each time a customer breached an overdraft limit. Campaigners argued these fees were a breach of unfair contract terms and started small claims court action.
Figures obtained by the Mail’s sister website ThisisMoney.co.uk reveal that the number of complaints about current account overcharging hit 545,358 in the first six months of 2007 alone.
The banks and OFT decided to settle the matter once and for all in court and all complaints were put on ice in July 2007.
A spokesman for the British Bankers’ Association said: ‘We will get through this as quickly as possible.’
Lloyds Islamic Banking
Many Lloyds TSB customers are being hit with charges of up to £200 a month if they go into the red – while Muslims who use the bank are only being charged £15.
The part-nationalised bank has been accused of religious discrimination over the disparity between overdraft charges on its standard current account and its Islamic account.
The Islamic account was set up by the high street bank to attract Muslim customers by allowing them to keep faithful to their religion.
Sharia law does not permit the payment of interest so the ‘typical’ Islamic account at Lloyds TSB has been set up without an overdraft facility.
If a Muslim customer who has insufficient funds in the account tries to make a payment, it is blocked and a ‘return item fee’ is charged.
However, on some Islamic accounts such a payment is authorised and an ‘unplanned overdraft fee’ of £15 is then levied.
The bank says this is a management fee, not a payment of interest, so does not contradict Sharia law.
Meanwhile, customers with standard current accounts who go into the red by at least £100 without authorisation are hit with an ‘unplanned overdraft fee’ of £20 a day for a maximum of ten days. This could mean a customer has to pay £200 in one month.
The Islamic account is available to all customers at Lloyds TSB. In theory, anyone who does not need a permanent overdraft facility could switch to this account to avoid being hit by interest charges for going into the red.
The disparity between the two accounts emerged
Graham Milne, a customer and chartered accountant from Norham, Northumberland, said difference in fees was tantamount to ‘religious discrimination’.
He added: ‘This means that all the non-Islamic account holders are subsidising those with such an account. It strikes me as something which is bordering on illegal.
‘One cannot help feeling the organisation is bending over backwards to help Muslims to the detriment of everybody else.
‘The man in the street would say this is a form of theft. Whether you call it a management fee or an interest fee, it makes no odds because they mean the same thing.’
In the past few years, millions of customers at all the major high street banks have demanded the return of money which has been taken from their account in various forms of bank charges.
Many got their money, or the majority of it, back. A test case – designed to rule if such charges are illegal – is going through the House of Lords.
Until it is resolved, the subject continues to remain hotly contested.
A Lloyds TSB spokesman said: ‘The Islamic current account is for customers who cannot receive credit or debit interest due to their religious beliefs.
‘All of our Islamic accounts comply with Islamic law and are available to anyone regardless of background or faith.
‘These accounts are structured differently to our traditional accounts and are designed to help prevent a customer slipping into the red. A comparison with the overdraft charging structure on other accounts is meaningless.’
Earlier this month, it emerged that losses at Lloyds had escalated to £13.4billion – largely due to the reckless lending of Halifax Bank of Scotland, which it bought for £9.6billion in January.
The disastrous merger led to a £17billion taxpayer bail-out. The newly-formed Lloyds Banking Group is 43 per cent owned by the taxpayer.
The UK Economy Today
There are around two million people who are still paying into final salary – or defined benefit – schemes, despite wide-spread closure of these schemes to new entrants in recent years. But, while only 9pc of defined benefit schemes have so far closed to existing members, according to the research, around half expect to have closed by 2012, including blue-chip schemes which until now have mostly managed to hold out against closing to existing employees.
Most recently, Barclays said it was closing to existing members, and BA refused to rule out doing the same. Members of such schemes would be entitled to keep the benefits from what they have accrued so far in the final salary scheme, but all future contributions would go into a defined contribution scheme, where investment risk is shouldered by the members rather than the employer.
Schemes have been hard hit by stockmarket turbulence, falling interest rates and quantative easing, which has caused liabilities to balloon.
Government tinkering, such as the introduction of a tax on pension surpluses in the late 1980s by the Conservatives, helped convince employers to reduce or funding levels.
On the other hand City workers have seen their pay packets boosted by an average of six per cent, less than a year after bringing the world economy to the brink of meltdown.
As competition for ‘star performers’ pushes up salaries, a survey today revealed that financial workers and bankers were being offered around six per cent more money between June and July than in previous months.
This is despite many of the banks only being able to turn a profit because they have been bailed out with taxpayers’ money.
The City pay push also comes as a new report revealed six million Britons are now out of work and claiming benefit, many of whom are casualties of irresponsible City deals.
The actions of the financial sector are expected to cost a million Britons their jobs.
The average basic salary for banking staff and those in the financial services is now £53,223, thanks to a month-on-month rise, according to recruitment firm Morgan McKinley.
The group said pay is still one per cent lower than a year ago, but confirmed
While Bankers saw an increase in salary normal folk were seeing more bankruptcies.
The number of people declaring themselves bankrupt in the UK rose 22 per cent this quarter-year compared with the same period last year.
However, the London results were much brighter – only rising by 9 per cent since 2008, with just under 6,000 Londoners petitioning for bankruptcy.
John Bangham, a director at KPMG, said this number will continue ‘picking up steam as the myriad of consumers can no longer service their debt obligations.’
He added:’The insolvency figures will only increase.
‘Some banks are starting to offer mortgage products again.
‘[However,] securing debt on homes, either by way of refinancing or new mortgages, remains very tough for many people.’
Debt Consolidation Loan
Debt Consolidation Loan: Some Facts You Should Consider
Is it the correct time to go for a debt consolidation loan? This is one important thing that you would have to determine contingent upon your present debt condition. However, it is a useful means to go for a debt consolidation loan at all times prior to getting involved in a dilemma. If you face a debt problem, then the initial step that you should take is explore each and every potential option that is available to beef up your financial situation. Debt consolidation must be taken into consideration on condition that your budgeting has gone wrong and there are no other options left for you. Debt consolidation is not a simple solution and therefore there are particular elements to take into account prior to choosing it.
One of the principal purposes for seeking a debt consolidation loan is that you don’t have the capacity to make payment of your bills or your earlier loan amount every month. There are occasions when we become overwhelmed with a large number of outstanding bills and these may comprise telephone bills, credit card bills, utility bills and even home or auto insurance premiums. It is quite a difficult job to repay every one of them at the same time and over that, if you carry an outstanding loan amount, then it is similar to driving another nail into your own coffin. This is the time when debt consolidation loans must be thought about as an alternative.
Numerous individuals assume that debt consolidation is a helpful resource particularly when you are neck deep in debt. Nevertheless, professionals think that it could create more harm than you understand. You should do your homework prior to thinking about a debt consolidation loan. There would always be some advantages and disadvantages to this form of debt relief. As soon as you gather all the details, you are able to make a knowledgeable decision and find the path towards financial independence
Cash Back Credit Cards
Top Cashback Credit Cards in the UK
The double whammy of a slow down in spending caused by the recession and rising bad debts is hitting credit card companies hard.
And this impats consumers too as card companies look to maintain profitability. Rates and fees are increasing, spending limits lowered, applications for cards and limit increases rejected and 0% interest balance transfer deals are becoming history. Indeed many card companies are now charging transfer fees to those switching accounts.
Consequently it is getting harder to get something for nothing out of the credit card companies.
Cashback cards, though diminishing rapidly for new customers, offer one opportunity for canny consumers to get something back. These cards work like a normal credit card except they pay you each and every time they are used. Rather than giving away points or bonuses or free flights or some such reward, a cash back card gives hard cash, tax free every time the card is used.
It sounds crazy but these deals are out there because card companies want to encourage card use and want to encourage growth in card balances to earn interest. Offering cash they figure is a great way to achieve this.
However there are some things to watch out for when looking out for a cashback card and some actions to take to maximise their tax free earning potential.
Some cards don`t offer straight cash but vouchers or some other reward mechanism, usually tied to a particular retailer. These are nowhere near as attractive or as flexible as hard cash.
The benchmark rate is 0.5% cashback and any card paying more is a really attractive proposition but it is always a good idea to watch out for introductory offers and beware cards that might charge a monthly fee.
Cashback cards work great if the balance can be paid off in full each month. This is best done by setting up a monthly direct debit otherwise the interest to be paid each month will wipe out any cash earned. If it is not possible to pay off the bill each month, best to select a credit card based on interest rate.
And finally to earn as much free money as possible from these deals use the card for all normal spending. Use it to replace spending normally done by cheque, cash and other debit, credit and charge cards. Spending in this way is not an excuse to spend more but will mean the cash earnt for doing nothing quickly grows. But remember to pay back in full each month.
Cash back credit cards look great. It is rare shoppers can appear to get something for nothing but though these cards offer reward they also come with some risks. free cash can help you make the most of these offers and ensure that any free cash on offer truly is free cash.
