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Mortgage And Credit Card Companies Under The Spotlight On Consumer Charging
By: R.Green
For the first time since May 1996 reports have indicated that wage increases
have risen faster than house price inflation. According to Nationwide, "The
overall picture remains one of a gently softening market".
The signs indicate that the housing market activity is finally starting to pick
up, with estate agents reporting that buyers have begun returning to the market
and sellers are more willing to negotiate on prices, however transaction levels
are still reported to be low compared with last year. This represents good news
for buyers looking to get a property, however it stands in stark contrast to
findings from the Council of Mortgage Lenders (CML) ( http://www.cml.org.uk/ )
showing that the number of homes being repossessed has risen for the first time
in seven years, from 3,070 six months ago up to 4,640 for the first half of
2005.
The sharp rise in home repossession applications by lenders adds to growing
concerns that consumers are struggling with debt. Ed Stansfield of Capital
Economics, said, "Today's figures show that for a small but growing minority of
borrowers levels of debt have become a problem, despite historically low
interest rates.” These figures for repossessions were still, according to the
CML, "extremely low" compared with the early 1990s; however adverse credit,
arrears and repossessions look set to rise.
Richard Brown, Chief Executive of personal finance comparison site Moneynet (http://www.moneynet.co.uk
) is disappointed to recently see, in light of a
possible base rate cut, which would help to ease the burden of mortgage debt
within the housing market that, “many lenders are taking this opportunity to
increase their margins at the expense of their loyal savers by reducing their
fixed savings rates by more than the mortgage rates”.
The personal debt problems of the nation have also not been helped by the
punitive charging activities of several of the major lenders.
The Office of Fair Trading (OFT) ( http://www.oft.gov.uk/ ) has warned eight of
the major credit card firms regarding their activities towards customers who
miss payment deadlines or exceed credit limits, and ordered them to reduce their
“excessive” and "disproportionately high" charges, usually in excess of £20 per
transgression, to consumers or face being taken to court.
There are currently 30.6 million people in the UK possessing at least one credit
card, with a total of almost £60 billion owed on them.
The credit card firms have defended the need for late payment charges claiming
that their use was fair, "Only a very small proportion of customers attract a
default charge and as a responsible lender we must have a process in place to
manage late payments," a spokeswoman for RBS maintained. Which? have determined
that as many as one in four cardholders have been subject to some form of
default charge being imposed on them within the past six months. With the number
of people accruing charges, the credit firms have admitted they are able to make
£400 million a year from default charges alone, and Barclaycard has admitted
that 43 per cent of its operating income is generated from these fees.
The OFT have said that the sum being charged by companies is far in excess of
the actual costs to the card firms, for late payment. "The levels of the default
charges imposed by the credit card companies need to be reduced in order to be
fair".
Which? have seen the announcement by the OFT over the credit card penalty
charges not being fair, and the threats of court action as, “great news”, but
also wants other situations where banks hit customers with unfair charges to
also be looked into.
The Chief Executive of Money Advice Scotland, Yvonne Gallacher, said of the
prospect of reduced credit card fees: "This would make a big difference to the
thousands of low-income credit cardholders who struggle to pay off these fees
and charges."
Moneynet is not so optimistic for consumers, and advises for caution following
the OFT announcement, warning that credit card companies may be looking to
increase their profits via alternative ‘stealth’ charges, “We are concerned that
credit card providers may simply attempt to recoup their lost income via higher
charges for all…Moneynet recommends credit card customers consider their options
before taking out a card -and take into account all charges as well as the
headline interest rate”, said Richard Brown.
Some moves seem to be getting made to help those most at risk, but these
measures seem to be mainly driven by increased levels of consumer
dissatisfaction, and while house prices still look expensive compared with
incomes, the worst off may not feel a huge change in their circumstances for
some time to come.
About the Author:
Richard lives in Edinburgh, occasionally writing for the personal finance blog
Cashzilla ( http://cashzilla.blogspot.com/ ), and staring out the office window
when he should be working.
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