Archive for July, 2008

Interest Rate Action 1 of 3 – Complain

July 31, 2008

Creditor Complaints Procedures and FOS

We have got so used to being told what to do by big companies, and have placed so much trust in them that it comes as a shock when we find their feet are of clay. Similar to the day we realised our parents do not know all the answers to everything!
So realising that the credit offering companies are more concerned with their profits and bonuses than with our needs is a bit of a culture shift. Alright I exaggerate a bit – but not as much as you might at first think.
The question then is what to do about it.
We have more power than you might think in this. And that power is in complaint. Not at the pub across a pint of beer, or in bed at night to our partners.
To be effective complaint has to be focused and clearly thought through. So let us start with the companies’ own complaints procedures.
We start there because it may be that we can get a quick result, and save the further effort. But don’t count on it!
There is a second reason. Only after we have completed that procedure can we take the issue to the Financial Ombudsman Service (FOS); and this latter is worth doing.
If you are being charged an interest rate that is higher than 18% a year on a credit card [that is 1.5% a month] or than 9% for a term loan, or 18% on direct mail you do, in my opinion, have cause for complaint about that interest rate.
Even those cut off points are high rates to me, but we have to find points that are not themselves going to be cause of argument. Anything above these levels while Bank Rate is below 6% is usurious, and therefore immoral in the terms accepted by three major western religions for thousands of years.
Somewhere on your statement should be information about the complaints procedure of that company. It is a requirement for all members of the Banking Code and even non-members are expected to conform by the FOS.
The main points to get across about any sharp upward change in your rate at any time recently is that it is unfair and unreasonable. ‘Unfair’ is an important term in the Consumer Protection Regulations 2008 and the test of reasonableness is basic to British law.
You will need to make sure you put both the old and new interest rates in and point out that Bank Rate has not increased by even one percent in the period and therefore there is no case for this force majeure change to the rate charged to you. In part you should remember this letter will form part of what the FOS will work from so it needs clear information in it.
Send this letter off and wait for the answer. You should get an acknowledgment and usually about eight weeks later a final response.
If the final response does not reduce your rate to a sensible figure you send a formal complaint to the Financial Ombudsman Service. This will take a long time because the service is terribly overloaded already. But wait patiently and you should get a positive response. The FOS has the power to force the creditor to change the rate and/or make the company pay compensation.
Get the appropriate forms from the FOS website.
A lot of such complaints will encourage the FOS to raise the matter with the regulators.
See also the next two blogs I am preparing Interest Rate Action 2 of 3 – Complain which deals with contacting the Office of Fair Trading and Interest Rate Action 3 of 3 – Complain Which deals with the Financial Services Authority.

Joseph Harris
Debt Control Man

Immoral Interest Rates

July 30, 2008

What are interest rates? Yes, of course, they are percentage charges levied against the borrowing of money. But that is not actually what I am getting at.
My question perhaps should be: What are honest interest rates? But how to sort that one out?
Well there are one or two pointers. Take for example the position of observant Muslims. They regard the charging of interest as immoral and do not do it, just as they are instructed in The Koran. But they still lend money and some make a living from doing so.
Jews and Christians are equally warned against usury in the Old Testament of The Holy Bible. And the truly observant ones avoid lending or borrowing at interest.
Indeed that great book also has no truck with harsh loan conditions at all. Where, for example, a poor man has pledged his coat against a loan the creditor is told he must return it overnight so the poor man may be kept warm.
Clearly an attitude foreign to our western credit industry and specially to many members of the credit card fraternity.
I am raising this because yesterday the Daily Mail revealed the disgusting behaviour of a number of credit card companies in raising their rates to levels that cannot be defended
In Biblical Terms this is usury—as the Oxford English Dictionary puts it this is the practice of lending money at exhorbitant interest. It also defines it as ‘higher interest than is allowed by law. Unfortunately it seems the law in England and Wales at least has little to say on the matter and the regulators even less.
But what figures are we talking of? Well the wholesale loans which the banks take on have interest rates which normally relate to the Bank of England Rate which is normally announced By Mervyn King, Governor of the Bank, each Thursday.
Currently it is somewhere over 5 per cent. In the interbank settlement each night the Banks and other institutions—who must balance their books—borrow from the specialist Discount Houses at rates pretty close to that level (unless there is a short term liquidity crisis). And generally, unless the financial institution is in meltdown, as Northern Rock was, they can find funds at a reasonable rate.
So, bearing in mind that the Credit card operations have to pay for staff and premises and sophisticated computer systems and so on, it is resonable for them to add a bit to the interest rate if they are not going to levy charges. So would we say an extra 5 per cent; let’s be generous and say seven.
So I judge a reasonable and maybe honest and moral interest charge at 12%—but let’s be even kinder and say 12.9%. That, by the way, is about 1% a month.
However, greed having no known limit, it seems MBNA is charging at up to the rate of nearly 36%, that is around 3 per cent a month. And about a third of card holders have had their rates raised in the past year by issuers Egg, Capital One, Lloyds TSB and Barclaycard, according to the Daily Mail. A monthly rate of 2% equals around an annual 24%. Should the rate be more than 18% [1.5% monthly]?
One little trick to pretend they are doing nothing at all is to stop showing the annual rate on the monthly statement, and just show the monthly. Since it is well known that most of us are not very numerate they are relying on our ignorance to deceive us. Dishonest I say. Especially as they most certainly do impose charges.
I also ask where are the regulators.
Well, I want you to do me a favour. Come back here and I am preparing some instructions for what you should do about it. If I can I will put the first up tomorrow. So in the meantime gather pen, paper, envelope and stamps.
Let’s start a borrowers’ revolt.

Joseph Harris
Debt Control Man

Lessons from a bigger cousin

July 20, 2008

I have always been staggered at how kind the American legislative system is to big business. And reading the New York Times study on Debt
has led me to believe we follow their lead at our peril.

Most staggering perhaps is the appearance of no checks on the lending practices of banks, mortgage lenders, loan operators or credit card suppliers.

The lesson is to beef up our own consumer protections and not to follow the path trodden by our American cousins. It seems they have invented a modern form of slavery for the majority of Americans, even if it looks pc [a bitter comment on the colour, race, age and disability blindness of the new plantation owners – even lack of income seemed unimportant to them].

When the economic history of this time comes to be written I hope the historians will have the courage and perception of Keynes and Galbraith in their descriptions of how the Great Depression came about.

In the meantime I can only recommend to make no new debt and to apply to the paying off of what debt you have [this will be according to your own needs and decisions]. And to fight vigorously any unfair treatment by any institution.

Joseph Harris

How’s Your Financial Competence?

July 19, 2008

I ask not out of nosiness, but because tomorrow various arms of the financial great and the financial good are gathering together in Cambridge [Money Guidance Pathfinder conference] and in three days will, it seems, work out how to teach us all better money management.

Well. No. I’m being unfair. This process started here in 2006 when the Treasury declared it would happen. And they did this because the OECD decided it should [though you will hear the government take the credit as though it was all their own work!].

And what it seems they are actually discussing is the detail of a pilot progamme in the north-east and the north-west of England to start next year.

The idea behind it is to give much more, and much more readily available, information on what credit in particular and money management in general is all about. And I think we have to applaud the idea, and the fact that it is making progress – it may even be that the UK is moving faster than any other country on it.

The conference includes banks as well as existing free information providers like the Citizen’s Advice Bureax, so there is a chance it really will deliver good advice.

But why, whenever I see the word stakeholder in these announcements, do I feel about to be in need of the guidance of Caveat Emptor[let the buyer beware – or look for the small print – or hold tight to your purse]?

At least we can watch and wonder with the hope that in a few years most people really will be made more aware of the dangers of bad money decisions, without the need to have been through the nightmare of bad debt first – as so many of us have been.

I am writing a blog page on the Money Guidance process, but I will take a few days to put it together.

Joseph Harris

Health and Debt

July 2, 2008

There are a lot of links between health and debt. And I am not here talking about url references; many people have experienced one or more of those links, and unfortunately many more will do so.

My mind turned to this when I came across an article by Janet Daley on Monday for the Daily Telegraph ( floating the appalling idea of ‘top-ups’ in our health service.

There are two meanings to this, happily confused by some to win a different argument. There is the issue of topping up one’s medicines or treatments over and above NHS treatments, and there is the very dangerous idea of turning the NHS itself 2, 3 or four tier.

Like all health services round the world the NHS struggles to offer equal treatments everywhere and all the time. These are problems of management and funding, rather than structure. As I say that is shown by the similar difficulty of all structures in use.

The cost of new treatments and of ageing populations is also experienced everywhere, so do not be taken in by the cost arguments either.

In fact, and you may check the OECD figures on this, the NHS and British healthcare in total is far less costly than in almost every other country, and only in Britain is there near achievement of treatment of need, free at the point of delivery. In value for money I do not think there is a better system.

There are specific differences you can compare if you wish, and that will depend on a political view, or a personal experience—from the considerable discussion I have been involved in and the long interest in healthcare issues.

But Ms Daley (yes, I finally got back to that!) is actually talking of the healthcare system in the US, and the experience of it for the well off and the rich. Over the past six years or so I have had considerable discussion and revelations about the US system and in he past three I have had the cyberspace equivalent of stand up rows on it too.

My net warning to all that fall into neither the category of well off nor of rich is do not laud, applaud or talk up the US system or any aspect of it. It costs, per head of population or percentage of GDP, twice as much as our system—around 16+% against our 8+%.

Yet Americans are hardly covered at all by a convoluted, complex and out of control system that involves insurance companies, Medicaid and Medicare, patch ups, voluntary and welfare sectors, Federal involvement and State involvement, and, of course, the Aggro-chemical industry (and that is not a typo, that is my opinion ;-)).

Oh, and even if you are fully covered by insurance, you still have to pay the major part of any serious healthcare or accident treatment out of your own pocket—and always some top-up to any treatment or drugs.

And where does debt come in?

There are countless cases of American families, hit by serious illness or accident of some sort, that has required a lot of treatment—and that means ‘expensive’—that have had to find so much money for that treatment that they have ended up bankrupt, and even have lost their homes.

This situation mostly applies to middle class families—poor families are lucky to get the most basic patch up! and around a third of doctor time is wasted arguing with insurance companies. Crazy, crazy system.

That to me is uncivilised. For the richest country in the world to persist with this is quite beyond my comprehension.

But even here, where our treatment needs are met, and of course there are imperfections—still better than the imperfection of no treatment at all—ill-health and accidents cause the most serious strains on budgets, and on the ability to apply energy to keeping going.

Debt then is more than likely to rear its ugly head anyway; and facing the problems of repayment can be testing, even if our creditors are understanding and supportive.

Unfortunately an awful lot fail the test of supportiveness. Can you imagine how hard it could be if we had to find large chunks of money for the treatments as well? Value our National Health Service, resist the calls of the selfish for Americanised—including ‘privatised’—healthcare.

And let’s keep our debt problems as manageable as we can!