‘Nationwide campaigns for positive order of payment’

December 12, 2007 at 10:45 am

The vast majority of all credit card providers operate a negative order of payment, meaning that your monthly repayment is used to pay off the cheapest debt first, leaving such items as cash advances (which attract a high interest rate), to accrue yet more interest. This may be good news for the provider’s profits but it’s certainly bad news for the consumer.

The Department of Trade and Industry (now known as the Department for Business, Enterprise and Regulatory Reform]) has announced that as of 1st October 2008 all providers will have to make clear to the consumer how the repayments are allocated. The following words must, by law, appear on each statement from next October: “If you do not pay off the full amount outstanding we will allocate your payment to the outstanding balance in a specific order, which is set out. The way in which payments are allocated can make a significant difference to the amount of interest you will pay until the balance is cleared completely.”

Nationwide claims to be the only credit card provider currently operating a positive order of payment and is campaigning to have other providers follow their example. They do not feel the DTI proposals go far enough and would like to see the statutory message preceded by the word “Warning,” as well as having the rates set out in the same place as the message, so that consumers do not have to go hunting for the information. They would also like the message to appear only on statements where the negative order of payment is relevant to the customer.

The divisional director of Nationwide, Jeremy Wood, says: “Many credit card providers use low introductory rates to lure people into opening an account. These offers can look very appealing, but when you scratch beneath the surface you discover that credit card holders often don’t receive the full benefit of these low rates.”

The “0% on balance transfers” is a common carrot dangled at the consumer, but an example of the type of situation where Jeremy Wood feels that consumers should be exercising caution. For example, if you were to transfer your balance across and withdraw £100 in cash you would receive a statement showing the balance transfer and the £100 cash withdrawal. If you paid off the £100, knowing that it attracted interest, and did not use your credit card again, you may be surprised to receive a statement the following month, still showing the £100 cash withdrawal (notching up interest) but a reduced amount on the balance transferred.

66% of us think it is important to find a credit card provider who operates a positive order of payment, and yet 69% of us do not have a clue as to how our own repayments are allocated. Nationwide reckons that this ignorance, combined with a large dose of apathy, costs us a staggering £500 million a year. The average person keeps the same credit card for six years, regardless of whether or not they are getting a good deal, and armed with this knowledge, there seem to be a lot of providers out there who are using this to their advantage.

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‘First Alert from Lloyds TSB’

December 7, 2007 at 3:34 pm

The experts say that using plastic is safer than cash, and that card fraud is actually less common that it used to be, thanks to the introduction of the Chip and PIN system. However, fraud is on the increase – by 16% in the cases of “card not present” transactions (for example internet, mail order and telephone sales) – and cases of card cloning are up by 3%. According to the UK’s Fraud Prevention Service, it takes an average of 201 hours to unravel the harm done by card thieves, so the thought of someone getting their hands on our card details is understandably worrying.

For customers of Lloyds TSB it seems that help may be at hand in the form of their First Alert service. This is the first of its kind to warn customers by automated phone call of the possibility of suspicious activity on their current account.

The service for credit card holders has been available since 2005, but earlier this year the bank decided to extend it to holders of debit cards. It means that valuable time will not be lost in recognising fraudulent transactions and will help customers negotiate the red tape involved when things do go wrong. Gerrard Schmid of Lloyds TSB, explained: “The system proved a huge success on credit cards and by extending it to our debit card customers we’re planning to crack down further on card fraud… the expansion of our ‘First Alert’ system to debit cards, will be a real asset.”

The call to the customer asks whether they recognise the transaction and, if they can confirm that all is well, that is the end of the matter. If, however, they are unable to give the all clear, they are put through to a Lloyds TSB employee who will assist them in making arrangements to freeze the account and obtain a refund for the fraudulent transaction. The system used, combines Lloyds TSB’s own fraud detection technology and a system provided by Adeptra, experts in the field of automated contact and resolution services for Consumer Credit and Risk Management.

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‘Halifax launches multi-currency ATMs’

December 7, 2007 at 3:27 am

Halifax has become the first high-street bank in the UK to launch multi-currency ATMs that will allow customers to withdraw cash from a current account or credit card in Euros and US Dollars. The machines will accept Visa and MasterCard credit and debit cards, dispensing Euro and Dollar banknotes in denominations of 20 at a competitive rate of transfer. Halifax customers and those with other banks will be able to use the ATMs, which charge a 0% commission rate. However, non-Halifax and Bank of Scotland bankers will be forced to pay a charge to use the service, in accordance with their bank’s terms and conditions.

The first multi-currency ATM was installed at the bank’s Old Broad Street branch within the City of London. Plans are already under way to set up more such machines around Britain. So far, Halifax has confirmed machines for Cannon Street in London Strand, London Fleet Street, Basingstoke, Chester, Dumfries, Southampton and Windsor. More will be rolled out during the next few months.

“Our customers have told us that the immediate availability of foreign currency would be a valuable addition to the wide range of services we already offer, and we plan to roll out more of these multi-currency ATMs in the near future,” explained Nigel Turkington, head of travel money at Halifax.

The machines, which are provided by Travelex, should prove popular with people looking to secure their travel money quickly and easily, particularly those going to the US, as the Pound continues to look strong against the US Dollar.

This summer, Tesco Personal Finance started a similar scheme, placing special Euro ATMs in selected Tesco supermarkets around the country. It proved so popular that the company quickly decided to up the number of machines to 20. Customer responses showed that people were especially taken with the fact that they could get their holiday money while doing their shopping.

Steward Gow, head of ATMs at Tesco Personal Finance, explained that convenience is the main appeal of multi-currency ATMs, noting that those placed near UK transport hubs are proving to be the most popular.

“We want to make travel money accessible for our customers. They can pick up their Euros at a competitive exchange rate at no charge whilst they do their weekly shop which is convenient. It’s an easy way for customers to get their holiday money,” he said.

“Initial customer feedback has been really positive with the emphasis on convenience. We want to improve our customers’ experience every time they deal with us and this trial will help us further understand their needs.”

The Tesco Euro ATMs can be found at a number of stores, including Ashford, Gatwick, Long Eaton, Altrincham, Glasgow, Bury, Hemel Hempstead, Chester, Finchley, Aylesbury, Port Glasgow, Dover, Hatfield, Andover and Newton Abbott. There are also five ATMs dispersed across Northern Ireland.

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‘Ditch your charity card and donate your cashback!’

October 16, 2007 at 10:53 am

Back in July, we gave you a round-up of the best charity cards on the market. Charity, or “affinity”, cards are certainly popular and the better ones raise substantial sums of money for good causes. And yet…with a wide range of cards offering cashback, you could benefit your favourite organisation even more by directly donating cashback “earnings” to the charity.

The most generous charity credit cards donate more than 1% of your spend to the charity, as well as making a one-off donation, typically £20, when the card is first issued. A card like the Halifax NSPCC Charity Card is more typical, however, with 0.25% of all purchases donated by Halifax to NSPCC. So, if you spend £3000 on your card in the first twelve months, the NSPCC will receive a funding boost of £35 (the initial £20 donation plus £15). It hasn’t cost you anything, but it’s not a huge amount of money all the same.

  • Currently Abbey is offering up to £50 cashback with its credit card. You earn 5% cashback on the first £1,000 spent on supermarket shopping before the end of January 2008.
  • A Capital One cashback card lets you earn 4% cashback on purchases in the first 3 months, dropping to 1% on purchases thereafter.

[ Barclaycard Platinum Cashback Credit Card offers 2% cashback on petrol and supermarket shopping, and 0.5% cashback on any other money spent.

A further advantage of donating cashback is that you can deal directly with the charity, and sign up for Gift Aid, so that the organisation can reclaim this tax to increase the value of a donation. Currently, hardly any credit cards automatically add Gift Aid on top of the percentage donation from your spend. The “donate as you spend” Hope for Children Mastercard is one of the few that do.

Ultimately, if you think you wouldn’t get round to making a donation directly, then a charity credit card may be an effective way of giving. Affiliating with a bank does also help raise the profile of a charity – something which in itself often helps the charity by boosting awareness and financial support. However, if you’re disciplined enough to do it, saving your cashback and donating it directly could do a lot more than a run-of-the-mill charity card.

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‘New warning over hotel check-ins’

October 12, 2007 at 11:14 am

A new problem with using credit cards for hotel check-ins has been highlighted in recent weeks. There is a chance that you could go over your credit limit without knowing – simply because you checked in at a hotel.

It is a common practice at hotels, but many people do not even realise what is happening to their credit card at check-in. When your card is initially swiped, what is really happening is that a sum is reserved from your account to cover not only the full cost of your stay but an estimate of any extras. So, for example, supposing you are agreeing to stay in a hotel room for £100 a night, it is not uncommon for the hotel to reserve almost double that price on your account in order to make sure you have enough funds for extras such as meals, in-room movies, and so on. This earmarked total sum is unavailable for your use during your stay and the earmark is only lifted when you finally check out and your hotel processes your final bill.

This process of earmarking in itself seems very dubious as it seems to be another way of claiming a deposit, often without the customer knowing. It could also run you into serious credit troubles.

Picture this scenario: a customer might check in to one hotel, where their credit card will be swiped and the funds earmarked. Before ever incurring a charge the customer cancels the booking and checks in to another hotel where the credit card is once again swiped. The card fails because there is not enough credit left as each hotel had pre-authorised a certain sum to cover an estimated cost of the stay, each sum being earmarked and therefore reducing the available credit.

Even though the process of hotel pre-authorisation is in much dispute, APACS, the body that regulates credit cards, confirmed that it was a standard practice, with hotels often pre-authorising an unrealistic amount before the stay. This is usually not an issue after check-out has occurred, but of course it can seriously disable your finances before check-out and therefore can be a serious problem. Not only are the pre-authorisation charges often unreasonable but the customer is not informed that this is happening.

Sandra Quinn of APACS insists that hotel customers should stay aware of what is happening to their accounts. It is important for everyone to make sure that they are asked to sign or authorise an amount before any sum on the account is earmarked.

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‘Credit card cheques – convenience at a price’

October 9, 2007 at 11:03 am

Have you received credit card cheques from your card provider recently? If you have, you are certainly not alone. Thousands of UK consumers are being tempted to cash in this type of cheque without being fully aware of the costly consequences, according to Which?, the consumer champion.

Credit card cheques allow you to make payments using your credit card account in situations where cards themselves are not accepted. They sound like a good idea in theory, but they are expensive. The Office of Fair Trading (OFT) declared in April 2006 that “credit card default charges … have generally been set at a significantly higher level than is legally fair.” The maximum penalty fee was set at £12, and thousands of consumers have subsequently, successfully reclaimed card charges. Meanwhile, according to consumer organisation Which?, credit card providers have been trying to rack up the cost of their other services to try and offset the sudden loss of income.

Which? Money Editor Martyn Hocking said, “Credit card providers seem to be resorting to a raft of ingenious methods to recoup lost revenue following the OFT crackdown on penalty fees.” This includes credit card cheques.

Although the terms and conditions must be clearly stated by the credit card company, industry specialists are concerned about the volume of unsolicited cheques which are currently being sent out to customers, who are often ignorant about this form of payment. Many customers don’t realise that these cheques attract higher interest rates than a “normal” credit card transaction. Because credit card cheques are not sent out in a book, but singly or as a sheet with multiple cheques, they can be harder to keep track of – and therefore an easy target for fraudsters.

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‘Even tiny missed payments can put you at risk from obtaining credit’

October 5, 2007 at 2:58 pm

We all know how important it is to have a good credit rating as we often need to rely on it when we want to get a mobile contract, credit card or make a big purchase. However, worrying new reports suggest that it is in fact surprisingly easy to get a low rating just because of a few mishaps. Indeed, even missing a few payments on your mobile phone contract can jeopardise your chances of obtaining credit in future, for instance when buying a home or getting a loan.

Apparently the increasing difficulties of maintaining a high rating are due to lenders putting tougher measures in place in order to spot rogue borrowers. More and more companies such as mortgage lenders, banks and suppliers of credit cards are now doing thorough checks on new customers using credit reference agencies which hold customer details on record. Even minor problems on a record could make a company wary of lending you money.

Spokesman Neil Munroe from credit reference agency Equifax explains that there is so much evidence to show that lenders now require more details of your credit history before they can process an application. He says that “minor misdemeanours are becoming more relevant, especially for first-time buyers. A consumer’s mobile phone credit history would previously have been seen as secondary information. Now it is being scrutinised.”

The fact mobile phone payments could be taken into account is the number of people who take mobile phones lightly. Not many realise that they could be harming their future when they fail to make a payment. It has in fact been estimated that up to 10% of the 24.4 million contract mobile phone users pay their bills late or do not pay at all. Should someone’s attitude to a mobile phone really influence their ability to keep up much more serious mortgage payments?

One thing is clear: the more chance there is for your credit rating to be lowered because of things like this, the more likely it is for you to suffer unduly as a result. Indeed, there have been many cases where a credit rating has been lowered as a result of a fault on the part of companies. For example, say you have a mobile phone contract and you are overcharged one month and do not pay – even if the dispute is resolved, your details could have long been passed on into the bad books for credit. This is clearly unfair.

Though everyone would accept that lenders must know if the customer is reliable, there is some line to be drawn to check this reliability. Perhaps by weeding out the rogue borrowers, companies are also mistakenly rejecting those who would have perfectly kept up with any repayments.

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‘Number of people seeking credit card debt advice soars’

October 2, 2007 at 9:43 am

The Citizen’s Advice Bureau has said that the majority of requests for advice it receives are from individuals struggling with personal debt. In the year up until June, the charity handled 1.7 million cases, an increase of 20% on the previous year. This equates to roughly 6,600 queries every working day. One in three of the queries the organisation receives is regarding debt, which replaces welfare as the most common reason for contacting the CAB. The volume is so great that the organisation is running out of trained debt advisors and is struggling to recruit enough new personnel to work in the area.

Chief Executive of Citizen’s Advice, David Harker, commented: “These figures are worrying evidence that while many have enjoyed the benefits of the credit boom, a large and growing number of people continue to pay the price, becoming overwhelmed by serious debt that can have a devastating impact on their lives.”

The demographic most commonly affected by debt problems are young families. Having taken out a mortgage at what could prove to be the top of the house price cycle, and with interest rates going up, many young couples have taken out personal loans or credit cards in order to cover their costs. Other affected groups include over 65’s who spend on credit cards to supplement their retirement income, and young women who live on their own. These groups have seen growing numbers of people declared bankrupt, up from 28,000 in 2005 to 107,000 last year.

The Consumer Credit Counselling Service has noted that, whereas traditionally, bankruptcy usually stems from a significant change in individual’s personal circumstances, such as divorce, family death or unemployment, its chief cause now seems to be simply overspending.

The growth in the credit industry started in the 1990s. As the property market started making record gains (and continued to do so until recently), lenders were happy to issue money with property as the collateral. With the arrival of American specialist credit card firms such as MBNA, competition increased in the credit card market, which had previously been dominated by retail banks. Providers offered customers lots of cheap money, which people happily snapped up, and spent on anything from home improvements to holidays and cars, as well as day-to-day living expenses.

The result is record levels of debt across the UK, currently £1,354 billion. This has caused some concern that economic growth is underpinned more by growth of debt than by growth of output. Shadow Secretary of State for Work and Pensions, Philip Hammond commented on the current situation, saying; “An economy built on borrowed money is built on borrowed time.”

There will be concerns now as to how the ‘credit crunch’ which has rocked financial markets will filter through to consumers. As banks become concerned about their exposure to debt, and make the cost of borrowing more expensive, consumers should not be surprised to see these costs being transferred to them. Mortgage interest rates are likely to go up, particularly for customers of sub-prime lenders such as Northern Rock, and interest rates on credit cards are being revised as banks become concerned about the increasing number of people defaulting.

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‘The cost of using plastic abroad’

September 28, 2007 at 11:25 am

Since the Office of Fair Trading ordered credit card companies to charge a maximum of £12 to overspending customers, companies have been making up for lost profits with a variety of charges applying to other types of spending. A recent report by consumer group Which? argued that credit card companies were being devious and employing underhand tactics to keep their margins high. Martyn Hocking, editor of Which? Money, said

“Credit card providers seem to be resorting to a raft of ingenious methods to recoup lost revenue following the OFT crackdown on penalty fees.”

Sandra Quinn, speaking for the industry body APACS, defended credit card companies, saying:

“We always said that charges would change as a result of the OFT ruling. We have been much more upfront about how charges are applied – every statement has a summary box listing charges and key information about charging.”

Whether or not credit card companies are being clear enough about their charges, thousands of people will come back from their summer holidays to credit card bills they didn’t expect. In 2007, British travellers will spend around £25 billion on plastic abroad, with fees and expenses adding an extra £500 million. This means that on average, consumers spending on plastic overseas pay an extra 2 per cent on top of their purchases, by no means an inconsiderable amount.

Two of the worst culprits in this area are Lloyds TSB and Natwest. Lloyds, (who also recently introduced a fee on dormant credit card accounts), charge 2.75% on overseas card transactions, on top of a £1 flat fee. Natwest has recently increased its fee to 2.75%, with its flat fee increasing by 50p to £1.25.

Most banks charge between 1 and 2% on cash machine withdrawals abroad. HBOS charges a flat fee of £1.50. It is worth noting that Nationwide stands out from its peers in this sphere – it makes no special charges for overseas use of plastic.

The other thing travellers should look out for is an extra charge from the retailer. ‘Dynamic Currency Conversion’ (DDC) works when the retailer gives the customer the option to convert their bill into sterling. This may be attractive for travellers inexperienced in using foreign currencies, and would like to know the sterling value of their purchases. However, the exchange rate offered by the retailer’s DDC can be up to 3% worse than the official rate.

The cheapest way of spending abroad is to buy foreign currency before you depart (the Post Office and Marks and Spencer offer some of the best conversion rates). However, this means you have to budget very accurately, which is not always possible. If you underestimate, you might be forced to buy more expensive currency abroad or use your bank card. If you overestimate, you will be left with foreign currency on your hands which you may have to convert on your return, incurring additional costs.

Before you go away, plan your currency provision. Find out how much your credit / debit card provider will charge you if you use your plastic abroad. This means you won’t have a nasty shock waiting for you on your doormat upon your return.

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‘The Sun and Master Card join forces’

September 24, 2007 at 11:53 am

The latest way to spend our money is a method known as pre-paid credit cards. Imagine a pay-as-you-go mobile phone sim-card or a London Oyster card, where you can only reap what you sow and only spend what you have. The credit card is unlike any other on the market as customers can’t rack up debts. The idea is to grant people who are unable to open bank accounts or be given credit cards for various reasons (often for mismanagement of their funds) access to a plastic card.

Tuxedo are a company affiliated with Mastercard and offer this service, also working alongside Newcastle Building Society. Tuxedo have also recently teamed up with The Sun newspaper to launch this pre-paid to all of its readers. Chief Executive of Tuxedo, Mark Simon, said, “The reason we looked to The Sun is that they have a very loud voice in the marketplace and can help probably more than any other media to explain this product to their readers.”

The pre-pay cards work out slightly more expensive than other credit cards (sometimes deducting around 3 pence for every pound in a transaction) but have the immediate advantage of customers being unable to rack up debts and are available to anyone. By the end of spring 2008, the plan is to have over 2000 high street bank branches offering a free ‘top-up’ faculty in their branches as well as in shops, by direct debit or via their work salaries.

The Sun will heavily promote the card in its newspapers and on its website and it will tempt its readers with a free £5 starting credit on their cards. The marketing campaign is thought to be costing The Sun £1 million over the next year. This might have something to do with the fact that other newspapers and publications have beaten them to it.

The Daily Mirror launched an identical service back in November 2006, partnering with a similar company to Tuxedo called Quidity. The card is Maestro / Switch but offers exactly the same service. Quidity has the added incentive that, similar to a supermarket points card, when customers use the card on a purchase at certain affiliated stores (for example, M & S, Dixons, Tesco) they then earn cashback for their purchases.

Virgin Money also launched a similar card in July 2007, which is affiliated with Mastercard. Even the magazine FHM, the media sport group Talksportand the record label-cum-nightclub The Ministry of Sound have similar pay-as-you-go credit cards. Considering such shifts, it seems that our paper money under the mattress has been replaced with a plastic sheet.

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