Family Finance Weblog

Author: Catriona Singfield

Chronic Fatigue Syndrome, also known as ME and stigmatised as ‘Yuppie flu’ in the 80s, has now been recognised as a proper, and serious, life-damaging illness. Unfortunately for sufferers, some major insurance companies are behind the times, as Miss A found out.

Diagnosed eight years ago, Miss A suffers from a virulent form of ME that has left her wracked with pain and totally unable to complete a normal day’s work, let alone hold down a job. With just £180 a week in benefits – which has to cover all her expenses, including assistance with the illness – she depends on the support and care of her boyfriend and family. Yet with a good, permanent health insurance policy in place, Miss A believed that she would be protected from this tragic situation

Miss A’s former employers believed that they were providing the best health insurance for their workers, with a policy from Swiss Life providing a permanent income in the event of a claim of 75% of final salary. But, after initially agreeing to pay out, insurance firm Swiss Life decided to drop Miss A’s claim. For the last five years, they have refused to pay her the money she is owed, and she has lost £40,000 so far.

Surely, you might think, we should hear Swiss Life’s side of the story? It’s certainly worth reading …

Disregarding personal privacy, as well as the debilitating disease and its effect on Miss A’s life, the insurance company set up a spying programme to capture evidence of her activities on video. They then used this to claim that she was leading a fit and active lifestyle, well able to work for a living and support herself. For example, footage of Miss A making a visit to her Mother’s house after attending a doctor’s appointment was used to suggest that she was perfectly healthy.

As both laymen and medical experts know, ME sufferers may be flat out in bed one day, and able to rise and perform light tasks the next, while being forced to rest yet again a few days later. Thus video evidence of Miss A simply out and about would not suggest to any medical professional that she had recovered.

Swiss Life have also criticised Miss A for providing them with evidence of long-term illness that they find insufficient. In 2002, she started a course of restorative treatment designed to get her back on her feet, but sadly she was unable to finish the course before a relapse hit her. Swiss Life claim that this is evidence not of Miss A taking steps to get well and being knocked back, but avoiding treatment.

You might think that the findings of a respected Harley Street ME specialist might be enough to pacify the insurers. But even with this assessment, Swiss Life are denying Miss A her rightful payments.

Swiss Life are a subsidiary of a company called Resolution, who have said that if Miss A wishes to take her claim to the Financial Ombudsman, then they will not try to prevent her case from being heard. But as Ombudsman compensation is limited to £100,000, Miss A is understandably reluctant to take this route. She does not know how long the condition will persist, and has little reason to trust Swiss life after her treatment so far!

Miss A, and others like her, are being hit by the same prejudice – the idea that such conditions as ME are merely ‘designer diseases’, excuses for the sufferer to get sympathy and avoid a day’s work. This could not be farther from the truth, as any doctor will agree. Real people are suffering real illnesses, and being denied payments that are rightfully theirs.

Until unscrupulous insurers are brought to heel, what can you do to prevent this from happening to you? Your first port of call should be a good online insurance broker. They will search policies for you, to your specific requirements, comparing companies and quotes. Make sure that they are aware of your concerns, and they will be able to help you find an insurance company that has a sympathetic, up-to-date attitude to conditions like ME. Not only that, but they may be able to hunt down an online bargain too!

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Author: Dot Piper

In the forty years since Barclaycard introduced the first credit card to Britain, there have been many changes. From being something to be regarded with suspicion they’ve changed into something we don’t appear to be able to live without.

The British seem to have taken to these cards like ducks to water and now 3.7 million people are claimed be in possession of 6.7million cards. Some people use their cards to switch balances between accounts and therefore save money and some simply sign on to new credit cards which have opening offers attached to them and, in reality, make little use of them. If you travel abroad regularly, it’s a good idea to cover both Visa and MasterCard in case of difficulties.

For the first five years, until 1971, Barclaycard retained its exclusivity but now there are 1300 different sorts of credit cards available across Britain. On average, card holders spend £60 per transaction and the amount spent in a year comes out at around £4,600.

Probably the most famous credit card in the world, American Express, was established in 1995. American Express was around before then, but as a charge card, the balance of which had to cleared monthly.

From the introduction of the Barclaycard in 1966 with its £100 credit limit, the average credit limit has now risen to £1,500 per card. Not everyone is successful with their credit card application though, as last year there were 1.7 million credit card rejections. There is around £1.4 million a year lost in fraudulent transactions. The recent introduction of the chip and pin should, hopefully, reduce these figures and new methods of card protection are being developed all the time.

The “flexible friend” has changed the face of shopping in the UK. Practically all retailers welcome credit card transactions. They can be used for shopping on the internet, booking holidays and an added bonus is the insurance which is included when paying with your card. It’s easier to use your card for everyday transactions, such as re-fuelling you car and it’s easy to keep track of payments with your monthly statement. If you pay your bills on time and avoid stretching yourself too far financially, your card really is your friend.

On the minus side, for someone who struggles to organise their finances, credit cards offer a temporary escape route and can create debt problems. Care is needed to avoid this, but if problems develop, our advice is to seek help before a molehill becomes a mountain!

A few more facts for you –

There is an Arab oil magnate who has a higher than normal credit limit on his Barclaycard – supposedly £1million

You may have heard of an American man nicknamed Mr Plastic Fantastic. His real name is Walter Cavanagh. He is reported to hold 1397 credit cards, with a maximum spend of $1.65million. We won’t even think what the repayment would be!

There’s a UK credit card which charges 46.19%. This tops the most expensive list! Interest rates average a more affordable 15.5% at present.

Competition in the credit card market has resulted in some excellent introductory deals at present. Applying for them is simple and the best way to discover them is on the internet.

Used wisely, they really do make life easier. Happy Birthday, Credit Cards.

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Author: Richard Norfolk

Student life is usually gregarious, with plenty of like-minded company to relieve the possible tedium of study. However, when it comes to dealing with debt, each student has to sort out his own salvation. The theory says that after graduation, the students of today will be the high earners of tomorrow. Doubtless in some cases this is correct but……..

The unavoidable expenditure on student loans to cope with day to day living costs, plus the credit card bills and overdrafts which occur when those costs become too great, have a way of accumulating. This results in students leaving university with, on average, debts reaching £10,000 or more. This is the current debt level. Expectations are that this will increase threefold within a very few years.

Unfortunately no-one can bank on a highly paid job to clear their debts immediately on leaving university. Even if such a job is ‘in the offing’ there is likely to be a significant delay before the actual earning power comes to fruition. In the meantime, i.e. when first starting at university, it is necessary to evaluate the costs you will be facing and plan how best to cope with them.

First – the cost of the course itself, that is the tuition fees. Below a certain level of family income there will be nothing to pay; above this level there is a sliding scale. In earlier years the total cost was paid by the government but this had to be altered when increasing numbers attending university pushed the total costs upwards. It was also claimed that increased earnings as a result of gaining a degree would leave ex-students better able to pay their costs during their working years.

Currently there is however a ceiling on payments, which restricts the value of same to 25% of the cost of the course. This is still a significant sum at around £4,000 but thankfully any balance will be paid by the government.

Don’t forget that this cost is purely to pay for your proportion of the course work – day to day living costs have still to be covered. This and any other needs should be discussed with your Local Education Authority as soon as you know what your tuition fees will be.

The LEA will then calculate the value of loans available to you. You then contact the student loans company and arrange for the necessary funds to be paid into your account ready for the start of the new student year. These are unsecured and will be provided at an interest rate which ties in with inflation, and will not be repayable until the end of the tax year after you graduate.

At this point the repayment threshold comes into operation, so that no repayment will be required until your earnings reach the specified level. Even then your repayments will not (under present legislation) exceed the actual amount borrowed, and will be set at a value that is suitable for your earnings level. If you should decide that despite your educational achievements, the life of an impoverished artist (or other poorly paid artisan) would best suit you and your earnings never reach the threshold figure, then, if you reach the age of 65 without starving to death, your debt will be written off!

So much for student loans – what else is available to you? Credit cards are an obvious source of credit (otherwise they would be called by a different name) but they really should be avoided if possible. With no special terms for students in most cases, the interest rates are high and the amount of credit available to students is low. A lot of money can easily be spent paying interest charges whilst having a maximum debit balance, which makes you pay out regularly but allows you to spend nothing.

A bank loan is another possibility but this too is dangerous ground. The possibility of an interest free student overdraft of £2000 is very attractive, but go just over the limit and the rules will be applied rigorously. This means you are likely to be hit by a very high interest rate PLUS charges for an unauthorised overdraft. The whole of any overdraft will have to be paid off as soon as you leave university, otherwise the entire sum will attract interest charges.

You are going to have to exist without real income for quite some time. Arrange your finances to the best of your ability for the avoidance of interest charges and your lifestyle for the avoidance of unnecessary expenditure. It will seem like a long drag but well worth the effort in the long run.

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Author: Dot Piper

September 2006 will see the introduction of new laws regarding child restraints in cars.

Current laws state:-

· Children aged three to 11 (inclusive) and less than 150cm tall are permitted to travel in an adult seat belt if no child restraint is fitted.

New legislation says:-

· Children aged three to 11 and under 135cm have to be seated in child seat or booster (designed to be used with an adult belt), suitable for their age and weight.

Children taller than 135cm (4ft 5ins) or aged 12 or over must wear an adult seat belt where one is fitted.

The driver is responsible for ensuring these rules are complied with until the child reaches the age of 14, when they must take responsibility for their own safety.

The Department of Transport believes that, by making sure that children are securely restrained and not allowed to use adult seatbelts until they are sufficiently tall for them to work in the proper manner, 2,000 child injuries and deaths will be prevented.

The penalty for failing to comply with these regulations will be a fixed penalty fine of £30 or, if the case proceeds to court, a fine of up to a maximum of £500.

Exceptions will be allowed in emergencies, cars without seatbelts, and when children are passengers in taxis.

Information on child-seat safety can be obtained from the Child Accident Prevention Trust, www.capt.org.uk or from the government’s website www.thinkroadsafety.gov.uk there’s a question and answer section on government website which is very comprehensive and seems to answer every question you could think of.

There’s a good choice of car seats available, and you should always ensure that they are made to conform to the European Union safety standards. For a young child it’s probably worth investing in a seat that can be adjusted as your child grows.

For an idea of what you’d have to pay for a seat which would take your child from 9 months to 12 years, the Recaro Start seat can be bought for around £200.

There’s the Evolva 23 seat, from Britax, which is adjustable and suitable for children weighing from15kg to 36kg and up to 135cm (4ft 5ins). The back of the seat can be extended as the child grows, so that the head is always supported. This costs around £65.

For a baby of up to 9 months, or around 13kg, a rear facing approved car seat is acceptable, fitted on either the front passenger seat or in the back of the car. It must no be used in the front if an airbag is fitted.

It’s extremely important that the seat is fitted properly, and many suppliers offer a fitting service. Do remember that it’s important that before you have the seat fitted; make sure it fits your child.

The 18 September is the date that the Department of Transport is aiming for, so remember, after this date you need to comply with the new rules.

These laws are to be taken seriously. Parents and regular carers are not the only ones who need to be “car seat ready”. You may occasionally take your, say 9 year old, grandchild out with you. The big difference there is that, prior to September 18; no special steps had to be taken. After this date you’ll need to equip yourself with a seat or booster.

If you are in the unfortunate position of being involved in an accident, and if your child or children are not travelling in an approved car seat or booster, your insurance may not be willing to pay out, resulting in what could be a considerable personal claim against the driver, whose responsibility it is.

Parents and (even occasional) carers please take note.

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By Dot Piper

According to the consumer watchdog, Which, about 5 million of the 28 million of us who have been targeted by fraudsters, have lost money as a result. Someone is clearly finding fraud highly profitable.

So what are the most common scams and how do you avoid them? Here are five to be thinking about.

The “Money locked up in an account” scam.

This is a really common fraud. It normally starts with an e mail giving a long and involved sob story about someone or some business, which has a very large amount of money tied up in an account and, through the most unfortunate of circumstances, they cannot get the money out. To do so, they need a UK bank account to have the money paid into. Of course, if you help them they will give you a big slice of the money. And the money is always held in a some obscure country, often in Africa.

Once you have replied and taken the bait, they come up with a story that for the money to be transferred to your account, they need you to send a payment, often thousands, to cover the administration or legal costs of enabling the money transfer. The actual details always change but the essence of the story remains remarkably consistent.

Will the payment arrive and will you ever get your money back? Of course not! In fact after you’ve made a first payment, they’ll ask for more! The up front payment needs to be increased and unless the extra is sent, the money you’ve already sent will be lost. You think you’re now in a catch 22 situation. But if you send more money, we can guarantee you’ll never see it again.

Millions of these emails go out each month, so if you get one delete it.

Boiler Room scams
This is a hard-selling technique to persuade you to buy investments on the promise of great returns that turn out to be worthless. Others sell shares in companies that don’t even exist. There are also related scams which involve investment currency or futures or options.

More often than not the initial contact is by telephone and a typical target will be a middle aged professional man ho has some investment experience. They often trace their targets by examining the share registers of UK quoted companies.

If you receive a cold call from a company trying to sell you investments, ask for their registration number with the Financial Services Authority. If they won’t supply the number, put the phone down. If they give you a number call the FSA’s helpline and check out that the firm is indeed registered (0845 606 1234). Never commit yourself until you are absolutely sure that the company selling the investments is reputable. 9 times out of 10 it will not be – so you have been warned!

Credit Card Fraud
The requirement to use PIN numbers will greatly reduce card fraud. But purchases through the Internet use the “card holder not present”, not PIN numbers.

That means that if a fraudster gets your card details he can happily buy on the Internet and fade into the mist with the goods he has purchased and sell them for cash.

To reduce your chances of being caught by this sort of fraud, you should sign up with Verified by Visa or Mastercard Secure Code. You’ll find further advice on www.getsafeonline.org and www.cardwatch.org.uk.

Phishing
Fraudsters are also very active on the Internet trying to persuade you to divulge details of your bank accounts, PIN numbers and security codes.

The fraud starts with a bogus e mail supposedly from your Bank. The e-mail normally asks to you confirm your account details for security purposes. Sometimes it says that unless you complete the confirmation, your account will be frozen. But security is the least of their aims – once they have your details, they’ll simple empty your account!

Be aware that Banks will never ask you to send details of your accounts etc to them by e-mail. If for any obscure reason they did need some confidential information, they would ask you to visit a Branch.

Identity Theft
It has been estimated that an identity theft takes place in the UK every four minutes.

If fraudsters can pretend to be you, they can apply for credit and open bank accounts in your name. This inevitably leaves a trail of debt and criminal activity all conducted in your name.

All they need is a credit card statement and a utility bill in your name. Watch out for the bin men! Better still, buy a shredding machine and shred any personal letters, bills and documents you want to dispose of.

Author: Adrian Taylor

Forget life’s luxuries, with the cost of even the bare essentials spiralling ever upwards, credit cards and loans are now the preferred option to cover day-to-day expenses. But with ever increasing interest rates, credit unions offer a real alternative – especially if your credit rating is too low to obtain credit via the ‘normal’ means.

Credit unions are controlled by their members and by operating as financial co-operatives, provide low-cost loans and attractive flexible financial products to their members by combining savings.

To become a member of a credit union, you have to fulfil the criteria of what is known as a ‘common bond’. Simply put, a ‘common bond’ is having something in common with the existing members of the union and that could be living in the same area as existing members, belonging to the same organisation/association or being a work colleague of an existing member.

As such, even if you have poor credit rating or are not a regular saver, a credit union may accept you as a member whereas a larger financial institution may not.

Both regular and irregular savers are welcomed by credit unions and the aim is that all savers – whether regular savers or not, are paid the same percentage on their savings as a yearly dividend. Typical this is 2 to 3% but as the rate paid is dependent on profits, this can be as much as 8%.

There are no restrictions on the amount you save and as such, you can pay as little or as much as you like. The frequency at which you make payments is also flexible and whether you pay in weekly or monthly or whenever you can, payments can be made at your convenience – whether at local shops or handy collection points. Payments can also be taken directly from your wages.

As long as you can prove you are able to save you can borrow money based on the amount you are able to repay comfortably and all services can be tailored to your circumstances and requirements.

In keeping with all mutual societies, although each credit union must ensure that enough money is available to ensure financial stability, the credit union itself is a non-profit organisation. Any profits made are used to reduce the rates of interest at which money can be borrowed and to increase the rates of interest paid on savings.

For loan repayments, the typical interest rate is only 6% with interest rates capped to 1% per month. So this means that a loan of £1000 can incur no more than £10 of interest per month. Members can also benefit from free life insurance.

Credit unions are governed by various legislation, most notably the Credit Unions Act 1979. This specifies that their accounts must by audited on an annual basis by a qualified auditor, that adequate insurance is in place against theft and fraud and sets out the objectives of the credit union.

Also to safeguard the future of the credit union and the member’s savings, all savings cannot be lent out and the remaining money must not be invested in high-risk ventures. Any residual money must be invested in government or similar reliable investments or must be put into bank deposit accounts. This also ensures that the money can be returned as and when needed.

Key points to bear in mind when considering joining a credit union

· You must meet the common bond requirements – either yourself or be closely related to an existing member that meets the requirements. You cannot therefore join whichever credit union you feel is most suitable for you.

· Although rules vary from credit union to credit union, you generally have to save money before obtaining a loan so a credit union is not a simple cheaper alternative to a bank loan etc.

· Regardless of whether you need money for your business, all saving or borrowing with a credit union must be done by an individual member and not in the name of the business.

· Cancelled checks are not retuned to you by some credit unions.

· As a rule, credit unions have few branches and very rarely any ATMs.

· The services offered by your credit union may be limited when compared to your local bank so ensure you know what is on offer. It may be more advantageous to maintain accounts at both your credit union and your bank.

To prevent the credit union movement within the UK from growing in size or competing with the products offered by the various banks or profit making organizations, restrictions are imposed by law to ensure that the movement remains relatively small scale.

To obtain a list of credit unions in your area, contact your local council or citizen’s advice bureau who should be able to provide the necessary information. Alternatively if you or your partner are employed, there may be credit unions that cover your industry. If so, your trade union representative or payroll department should be your first port of call.

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Author: Richard Norfolk

Read the title again and then keep it firmly in mind. Do not rush into owning a store card. Consider your decision very carefully, and always bear in mind that the use of any credit card is quite likely to have cost implications for you.

First of all we should be clear about what we mean by ‘store cards’. There are two main types – the usually innocuous type most often called Loyalty cards, and the far more ‘dangerous’ credit style card. The loyalty card is not being considered here because it does not normally act as a means of separating a customer from their hard earned cash.

This is the card where typically you get points based on the amount you have spent and can let these points build up. Then, when you have sufficient you can then use them for an in store purchase or discount. This is a harmless little perk which rewards you for repeatedly shopping in the store.

The credit style of card is a very different kettle of fish. Often they are afforded some camouflage by having loyalty card type benefits included in their system of operation. Thus the store may make a big point out of the fact that using their card will get you a discount on your purchases ‘today’, ‘this week’ or even ‘this month’. They are unlikely however to have anything approaching the same level of publicity regarding the potential costs to you should you fail to meet their payment dates.

The cost of late payment can be horrendous – the Annual Percentage Rate (or APR) can be as high as almost 30% on some store cards, which does not compare well with the usual credit card rate of 15% to 20%.

However, credit cards are now most definitely a way of life and it cannot be denied that they are very convenient. They can enable purchases which would otherwise have involved drawing the requisite amount of cash from the bank – although some husbands may say that this can be a bit too convenient at Sales times! The disappearance of so many bank branches will have given an added attraction to the credit card.

How does this affect store cards? Where once debt was regarded as shameful and to be concealed, the increased use of credit cards has got people used to the idea. Many people run into the red on their card and have to pay interest on top of their repayments.
This procedure then ‘rolls over’ into their use of store cards, and they find to their dismay that their payments are now being hit by the high interest rates. If they then find it impossible to pay the outstanding balance in full at the month end, the interest charges can accumulate and extremely serious problems can result.

Don’t forget that the inability to pay can hit you like a bolt from the blue. You may be jogging along happily, buying the items that you feel that you need and paying off your store card at the due time – then WHAM – redundancy, illness, family problems, loss of earnings. Through no fault of your own you cannot pay the amount due.

It all sounds like terrible ‘doom and gloom’, but treat it as a warning not to go in for any financial commitment until you have thoroughly studied your options.

Don’t be swayed by short-term benefits which lead you into long term problems. Are they really benefits, or is the store price higher than the price charged by their competitors? Ignore ‘pie in the sky’ rewards which you may never qualify for.

Unless you have reserve ‘rainy day’ money which can be accessed instantly to cover payments due, you may well have to face interest charges if you fall behind with payments because your income drops – just the time when extra costs are the last thing you need.

However, be prepared to sign up to a store card which offers a good discount on an item which you were going to buy anyway, but control the situation. If necessary you must take your discount and ensure that you make all your payments when due. Then cut your store card up, to avoid being dragged into the deep water of debt.

If you want to have credit then look closely at conventional credit cards and especially at the interest charges they make.

Consider, consider, consider. It’s your money – use it wisely.

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In recent years we have been swept away with the notion of “buy now, pay later” and it has allowed us to have what we want when we want it.
Credit cards are no longer a luxury item for the rich and famous but an accessory we almost can’t live without. Because of the growing amount of people with credit cards, the market is becoming more and more competitive and people are becoming more confused about what is and isn’t a good deal.

To take advantage of this information overload, cards are now targeting where the problems start – in store.
Store Cards are increasingly becoming more popular, particularly in department stores, as a convenient way to shop and gain rewards in your favourite or most frequented store. So what’s the catch?

Store cards don’t pose a problem if you are disciplined enough to pay off the balance within the interest-free period (typically between 35 and 55 days).

But, if you can’t pay the outstanding balance each month, the interest due on the unpaid debt can soon mount up. And it won’t be hard to do with the annual percentage rate (APR) hitting the 30 per cent mark on some store cards.
Store cards are regulated under the Consumer Credit Card Act, which sets out rules for any loan under £25,000. The taskforce is also examining whether a complete overhaul of this is needed.

Impulse Buying

Offered at the point of sale, store cards can be obtained after an application has been filled in and a credit check has cleared, which can literally take as little as 10 minutes. You can start spending on you store card as soon as you’ve signed the dotted line.
Recent research by the Office of Fair Trading has revealed that many people who take out a store card had no actual intention or want in making a big purchase before they reached the shops. In fact, 42% of people who take sign up for store cards never had any intention of doing so before they were asked at a point of sale and persuaded by the sales person.

It’s up to you

Store card rates vary, but according to data provider Moneyfacts some of the worst offenders are Comet’s Timecard which currently charges an APR of 29.9% and Debenhams whose store card charges an APR of 28%.
Better value store cards include John Lewis (includes Waitrose) with an APR of 13% and Marks & Spencer at 18.9%.
Most financial experts agree that credit cards with lower APRs are generally a better deal than store cards. But, you may be tempted by some of the benefits of a store card which could include introductory discount on goods - typically around 10% - or extra money off during the sale period.
Keep these points in mind

Before signing up for a store card take some advice from the Office of Fair Trading:

1. An initial discount may be a good deal - but it will depend on how quickly you pay off the balance.
2. Be APR wise - just how much will you pay on an un-cleared balance?
3. Is there is an interest-free period? When does it end and what will the interest rate be afterwards?
4. Check all details of the agreement - APR, interest free period, penalties for default and late payment - and don’t be afraid to ask questions.
5. Remember to consider carefully the costs and benefits of any Payment Protection Insurance (PPI) offered. It is optional and will cost you money.
6. Compare with other payment methods.
7. A store card can be a serious credit commitment for which you may need to budget.
8. Beware of pushy sales staff and don’t be lured into taking out a store card you don’t want – remember, the person selling it to you will probably be rewarded if they sign you up.
9. There is no need to sign on the spot - if in doubt, take the agreement away, read it and seek advice on it before you sign.
Carrying around a purse or wallet-full of credit and store cards can be a temptation to spend more than you can really afford. And, like any credit card, a statement will only come once a month making it difficult to keep track of how much you’ve spent overall.

Various credit cards and store cards are designed for various people with different needs. If you are considering a store card look into all the options and read the fine print. Is that new pair of shoes really worth what you’re paying plus a possible 30 per cent? Shop around, and get you and your money the best deal.

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Did you know that the Office of Fair Trading (OFT)have ruled that £12 is the maximum your credit card can charge you for each late payment or unauthorised borrowing? What’s more, you can claim back any excess charges you’ve paid going back 6 years!

The consumer magazine “Which” and lawyers have confirmed that this gives the go ahead for customers to reclaim all credit card, store card, mortgage and bank account penalties which exceed £12.

Stephen Alexander, a partner at solicitors Class Law, said, “Now that the OFT has decided that anything over £12 is unfair, it will be a lot easier for people to succeed against the banks in the Small Claims Court. People are entitled to claim back charges made within the last 6 years”.

The OFT’s ruling will hit the banks hard. After all, last year they took around £1 billion in charges with the Halifax, part of the Bank of Scotland Group, being one of the worst offenders. They’ve been charging £39 for unpaid cheques, direct debits and standing orders. The norm amongst banks has been closer to £30.

If you want help in claiming back the excess charges you’ve paid, you can’t do better than visiting the web site run by Which. For a fee of £10, Which will provide all the draft letters you need to enable you to mount your own court claim for excess charges going back 6 years.

Emma Bandey, a spokes person for Which said, “We’re urging people to claim back what they should never have been charged in the first place. The OFT has agreed with us that these charges are unfair and we think people should be empowered to do all they can to get their money back from banks that have posted billions of pounds in profits this year”.

Banks have until 31st of May to respond to the OFT’s ruling but says that it will take court action against any that have not reduced their charges by then.

The banks response hasn’t exactly been enthusiastic! They’re expected to generally comply with the OFT’s ruling for at least some of their charges and seem bent on battling it out for others. The British Bankers Association has questioned why the OFT has extended it ruling to encompass store cards, mortgage penalties and overdrafts when the original investigation only covered credit cards.

Their spokes person said, “We are surprised that the OFT has widened the scope of its ruling when it only spoke to credit card providers. We expect our members to challenge this. We believe our bank’s products provide good value”. As Mandy Rice-Davis, an infamous prostitute caught entertaining a Government Minister said, “Well he would say that, wouldn’t he!”

The OFT’s central position is that penalties must only be used to recover administrative costs – not boost profits! The OFT’s chief executive said, “We expect credit cards issuers to adjust their default levels quickly. We have not ruled out future legal action if the market does not respond positively”.

Wow, aren’t the Courts going to be busy!

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There a clear signs that traders in the City are expecting interest rates to rise by 0.5% by December this year. The Bank of England tends to make a series of small interest rate changes rather than one big change, so watch out for the first 0.25% rise around August.

Mortgage rates are already beginning to react with the rates for two and three year fixed rate mortgages rising. The rates on loans and credit cards are generally variable, so these aren’t likely to rise until the Bank of England moves.

It’s all because inflation is coming under pressure. The target for inflation is 2% per annum but with energy prices high, and likely to soar even further, we are beginning to see the knock on effect on prices of goods and services across the economy. And despite fuel bills siphoning money from the man in the street, new car registrations are up 7% in the year to March, industrial orders rose more than 13% and business confidence improved again last month (April). Even America the economy is experiencing surprising levels of activity.

All this is good news for Britain’s economy. The annual rate of exports has risen almost 20% virtually matched by imports. The major quarterly survey of the economy suggests that growth will remain strong.

Economic figures are all well and good, but for the man and woman in the street, it’s the housing market that is perhaps the key barometer. Here the current news is good for homeowners, but perhaps less good for those aspiring to get on the housing ladder.

Currently, the housing market is buoyant. Prices rose another 2% in April according to the Halifax, meaning that they are now some 10% higher than over the same time last year.

The problem is that sentiment in the housing market is very fickle. As soon as we get the first interest rate rise, watch the buyers dive for cover. A rise in August followed by another in early autumn, will probably cause the housing market to stall. As we all know, forecasts eighteen months ago that the housing market was in for a crash proved false – and we’re still not expecting prices to fall heavily. But it’s the property hot spots that will bear the brunt of any slow down. They’ll be the first to experience a slow down and a dose of realism in respect of prices.

At the moment nationally, the average house is being sold at around 95% of its asking price. When the interest rate rises emerge, we expect to see this percentage fall to just under 90% and asking prices will trim as a result.

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The Office of Fair Trading (OFT) has ordered banks to slash their late-payment fees on their credit cards to a maximum of £12. It says that their existing charges which average £20 to £25 and have risen by up to 40% in the last 2 years, are both unfair and illegal.

This groundbreaking decision opens the way for card holders to reclaim refunds for overcharging amounting to half a billion pounds!

The OFT says that late payment charges on store cards, mortgages and overdrafts should also be cut and is threatening legal action if they fail to comply. Indeed they say, ”If default charges are greater than £12, we will, subject to certain exceptions, presume they are unfair with a view to bringing enforcement action in the courts – we will litigate if we have to, against the strongest and most powerful institutions”.

The OFT’s decision is based upon the 1999 Consumer Contract Regulations in association with case law dating back to 1914.

If you want advice on winning refunds for overcharging visit http://www.which.net/campaigns/personalfinance/bankingcharges/whatyoucando.html

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Do you update the contents value on your policy each year? You should do.

Thousands of policyholders risk having any claim they make down sized because they’ve failed to insure their belongings for the correct amount. This can arise because they simply failed to calculate the value properly when they first took the contents insurance out, or they’ve bought extra bits and pieces and forgot to update their insurance value.

Take CD’s and DVD’s for example. How many have you got around the home? Norwich Union says it values these at £10 each. So if you’ve got a collection of 200, that means your insurer is likely to expect you to have included £2,000 cover for these never mind anything else. And then there are your mobile phones, I pods, stereos, flat screen TV’s, home computers and they like. Tally them up and watch their value mount.

And have you remembered to value the contents of your garden shed and garage? The average value there is around £2,000! All in all, the insurer More Than, estimates that the average family’s household possessions are now worth over £45,000.

If you’re uncertain whether you’re insured for the right amount and want some help, we suggest you visit the web site run by the Association of British Insurers. On the site you will find a useful checklist to help you calculate the correct level of cover you need. You can visit their site at www.abi.org.uk

Remember, if you don’t insure for the right value and have a claim, your payout will be scaled down proportionately to reflect the extent to which you are under insured.

About Contents Insurance
Contents Insurance covers everything in your home that’s moveable. That includes you carpets and curtains – even the lino! However, if it’s screwed down or built in, then those items such as kitchen units and sanitary ware, are covered by your buildings insurance.

The same principles apply to items kept outside. If you have a statue cemented onto a wall, it’s covered by your buildings insurance, but if it simply stands on the wall, it’s covered by your contents insurance!

The UK’s 2 million Muslims face an ethical problem when organising their money. Conventional mortgages, loans, credit cards all involve the payment of interest and interest, or “riba” as it is called under Islamic law, is forbidden by the Koran. (See below for a precise definition of “riba” and other Islamic finance words.)

British banks and building societies are increasingly catering for the specialist needs of Muslims through a series of alternative arrangements that adheres to the scriptures in the Koran. Here are just two of them:

Ijara with diminishing Musharaka
This is an Islamic home finance alternative to a mortgage that has been adopted by several banks and building societies. Musharaka basically means partnership. Under this financial concept, the financial institution buys the house and becomes its legal owner. Then over a set period, say 25 years, a monthly payment is made. Each payment includes a charge for rent plus a charge that buys a small proportion of the house itself. It’s a sort of shared equity plan with the proportion of the house being owned by the contract holder, steadily increasing as payments are made. On the final payment the house is owned outright.

Ijara
Here the financial institution buys something that you want, for example a car. The institution then allows you to use it for an agreed period in return for a monthly payment that covers the cost of the institution’s capital. In practice it’s a form of leasing

So where can you arrange Islamic finance? Here are three suggestions:

HSBC is developing a special range of Islamic products under the Amanah brand. These products include home finance plans, commercial finance, home insurance, and various current accounts and pensions. Hussam Sultan, Amanah’s product manager says, ”As a bank, we are not here to moralise or tell our customers that Amanah finance is the way to please Allah. We’re just here to provide them with a choice”.

Over the last year Lloyds TSB has been introducing Islamic products to its branches. 33 branches now sell Islamic products. They say, “It is important for our customers to see that we are following the right procedures. We have a panel of four Islamic scholars who over-see the products. They offer guidance on Islamic law and audit the products”.

The Islamic Bank of Britain has 3 branches in London, 2 in Birmingham, 1 in Manchester and Leicester. They are the only British bank specifically catering for Muslim customers and claim to be totally halal. All their products are approved by their Sharia’a Supervisory Committee – Muslim scholars who are expert in all matters of Islamic finance.

Glossary of various Islamic words used in finance
amanah: Trust, with associated meanings faithfulness, trustworthiness and honesty. As a central secondary meaning, the term also describes a transaction where one party keeps another’s funds or property in trust. This is in fact the most widely used and understood application of the term. It has a long history of use in Islamic commercial law. Amanah can also be used to describe different commercial or financial activities such as deposit taking, custody or goods on consignment.

arbun: Means a form of down payment. A non-refundable deposit paid by the buyer to a seller upon concluding a sale contract, with the provision that the contract will be completed during a prescribed period.

gharar: Means uncertainty. One of three fundamental prohibitions in Islamic finance (the other two being riba and maysir), Gharar is a sophisticated concept that covers certain types of uncertainty or contingency in a contract. The prohibition on gharar is often used as the grounds for criticism of conventional financial practices such as speculation, short selling, and derivatives.

Islamic banking/ Islamic finance/ Islamic financial services: Means financial services that meet the requirements of Islamic law or Shariah. While designed to meet the specific religious requirements of Muslim customers, Islamic banking is not restricted to Muslims: both the service provider and the customer can be non-Muslim as well as Muslim.
ijara: Means an Islamic leasing agreement. Ijarah allows the bank to earn profits by charging rentals on the asset leased to the customer instead of lending money and earning interest. The concept of ijarah is extended to a hire and purchase agreement by Ijarah wa iqtinah.

maysir: Means gambling. Another of three fundamental prohibitions in Islamic finance (the other two being gharar and riba ). The maysir prohibition is often used as the basis for criticism of conventional financial practices such as speculation, conventional insurance and derivatives.

mudarabah: A Mudarabah is an Investment partnership, where capital is provided to one party/entrepreneur (the Mudarib) by an investor (the Rab ul Mal) in order to undertake a business or investment activity. While profits are shared on pre-agreed proportions, any loss of investment is born totally by the investor and the mudarib loses the expected share of income.

mudarib: The mudarib is the investment manager or entrepreneur in a mudarabah (see above), who invests the investor’s money in a project or portfolio in exchange for a share of the profits. For example, a mudarabah is essentially similar to a diversified pool of assets held in a Discretionary Managed Asset Portfolio.

murabaha: means purchase and resale. Rather than lending money, the capital provider purchases the desired asset or commodity (for which a loan would otherwise have been taken out) from a third party and resells it at a higher predetermined price to the capital user. By paying this higher price by instalments, the capital user effectively obtains credit without paying interest. (Also see tawarruq.)

musharaka: Means profit and loss sharing. It’s a partnership where profits are shared in pre-agreed proportions whereas the losses are shared in proportion to each partners capital or investment. In a Musharakah, all the partners to the business undertaking contribute funds and have the right, but not the obligation, to exercise executive powers in that undertaking. It is similar to a conventional partnership and the holding of voting stock in a limited company. Musharakah is widely regarded as the purest form of Islamic financing.

riba: Means interest. The legal concept extends beyond interest, but in simple terms riba covers any return of money on money. It doesn’t matter whether the interest is fixed or floating, compounded or simple, and at what the rate is. Under The Islamic tradition Riba is strictly prohibited.

Shariah: Islamic law as disclosed in the Quran and through the example of Prophet Muhammad (PBUH). A Shariah compliant product meets all requirements of Islamic law. A Shariah board is the committee of Islamic scholars available to an Islamic organisation for guidance and supervision for the development of Shariah compliant products.

Shariah advisor: Means an independent professional, usually a classically trained Islamic legal scholar, who advises an Islamic financial organisation on the compliance of its products and services with Islamic law, the Shariah. While some Islamic organisations consult individual Shariah advisors, most establish a committee of Shariah advisors (often known as a Shariah committee or Shariah board).

Shariah compliant: Means an act or activity that observes the requirements of the Shariah, or Islamic law. The term is often used in the Islamic banking industry as a synonym for “Islamic”- for example, Shariah compliant investment or Shariah compliant financing.

sukuk: Similar characteristics to a conventional bond. The difference is that that they are asset backed and a sukuk represents a proportionate beneficial ownership in the underlying asset. The asset is then leased to the client to yield the return on the sukuk.

takaful: Means Islamic insurance. Takaful schemes are designed to avoid the elements of conventional insurance (i.e. interest and gambling) that are so problematic for Muslims, by structuring the arrangement as a charitable collective pool of funds based on the idea of mutual assistance.

tawarruq: This is the reverse murabahah. When used in personal financing, a customer with a genuine need buys something on credit from the bank on a deferred payment basis. That customer then immediately resells it for cash to a third party. The customer thereby obtains cash without taking an interest-based loan.

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One of the ways you can reduce your monthly outgoings is to get a new loan to pay off your existing loans and outstanding credit card balances and indeed, pay off any other outstanding debts. Called a debt consolidation loan, you then pay off the combined loan over a longer period thereby, reducing your monthly payment.

In practice another way of achieving even a greater reduction in monthly outgoings is to re-mortgage and increase the amount you borrow in order to pay off those troublesome debts. The Citizens Advice Bureau (CAB) advise people not to make this decision too lightly saying, “Our Bureaus are seeing people coming in who are being threatened with repossession as they struggle to make payments.”

Whilst the aim of re-mortgaging to restructuring debt is to reduce monthly outgoings, you must be aware that over the years you will end up paying much more. That’s because the mortgage repayments are spread out over a much longer period than a normal loan and throughout that time the interest continues to clock on.

Take someone who needs £25,000 to restructure their existing debts. If they took out a 5 year loan at 6.9%, the monthly repayment would be £492. If they re-mortgaged over 25 years then with a typical re-mortgage deal of 4.85%, their monthly repayment would be £150 less. But the interest cost would soar. Instead of paying £4,510 on the 5 year personal loan, the interest on the additional £25,000 taken out on the re-mortgage would add up to £19,046 over the full 25 years.

So our advice is to ensure you consider a flexible mortgage where you can make overpayments as soon as your financial circumstances improves

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Last summer the Office of Fair Trading warned the credit card industry that its penalty charges were excessive and had to be reduced. The industry largely ignored the warning so now the OFT is to force massive reductions - by up to 40%.

Later this month, the OFT is expected to announce maximum levels for the charges the providers impose on those clients who breach their credit limits, who pay late or whose cheques bounce. Rumours indicate that the cap will be around £15, perhaps lower, in comparison with the £20-£25 level so common within the industry.

This action follows an inquiry initiated by the OFT last summer. Eight of the largest credit card companies were asked to respond to the OFT’s provisional view that charges were at unfair levels and invited the companies to respond with data that would justify the fees they charged. Clearly, their responses failed to impress! It is known that HSBC, Lloyds TSB, Barclaycard, The Royal Bank of Scotland and Egg all argued that their penalties were justified by the costs incurred but their information couldn’t have been sufficiently compelling!

The consumer body “Which” is firmly on the side of the OFT. Their spokesman said, “We believe that bank and building society charges should be fair, reasonable and transparent, yet every year they make £3billion from these charges, which we consider to be disproportionate to the true cost”.

We agree. Just think – by dragging their feet for six months on this issue, the industry could easily have made £600 million more profit than the OFT thinks is truly justified. We say to the OFT, get tough and demand immediate action. Don’t give the banks etc months to put their act in order – that just lets them line their pockets for a little longer but even in a short time the excess profits they generate can be enormous.

Get your skates on OFT!

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For providers of loans, mortgages and credit cards, getting to the top of the Best Buy” tables is like hitting the jackpot. The customers can’t get through the door fast enough!

Customers can find the Best Buy tables in press and magazine articles or on certain price comparison web sites - they’re like manner from heaven for those of us wanting to emulate scrooge! Indeed, for finance companies, top positions can make all the difference between success or failure for a new product. So it should come as no surprise to learn that enterprising finance executives are not behind the door when it comes to devising tricks to find a way to the top of the tables.

Take Alliance & Leicester’s Moneyback Loan for instance. This loan product recently hit the top of the Best Buy tables for a £5,000, 3 year loan in a subscription only magazine for finance professionals called Moneyfacts. The interest rate was 5.5%. But the marketing boys at Alliance & Leicester had engineered the product to win top place for a £5,000 loan. The product was structured so that unless a client wanted exactly £5,000, the amount the client ended up paying increased and effectively pushed the product well down in the comparison tables. Not was all it seemed!

In the mortgage market, the Northern Rock Building Society provides another good example. It has a table topping position for it’s two year fixed rate mortgage. But look closer and you’ll find that they’ll only lend on 80% of the property’s value and it has a 1.5% arrangement fee. This means that it only makes sense for those wanting a mortgage of over £175,000 and effectively rules out most first time buyers.

Now take credit cards. Which is the better deal – Cahoots card charging an attractive 11.9% or HSBC’s at 13.9%? The answer is that it depends on how you use your card! Cahoot charge interest right up to the date they receive payment whereas HSBC only charge interest to the date the bill is produced. The result is that if you regularly paid off your bill, HSBC would be cheaper!!

So what is the lesson to be learnt? Lenders are in the market to make profit and you can bet that if on the surface, a loan, mortgage or credit card looks really cheap, there’s going to be a catch somewhere – some angle through which the lender gets more money back.

In our view there’s no such thing as “A Best in Market”. What’s best for you will depend on your personal circumstances and how you want to operate the finance. So by all means look at the “Best Buy” tables but do so with a pinch of scepticism and a healthy regard for the small print! The problem is that most people are not sufficiently experienced to sort out the small print – so our advice is that when considering a significant financial purchase, use a broker. This does not necessarily mean that you’ll have a brokerage fee to pay, many of the brokers work off the commission they receive from the lenders, and their experience could save you a packet.

All the best financial brokers have web sites so our advice is stay online and let your fingers do the searching!

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The Competition Commission has at last moved to shame credit cards in to cutting their charges. The move comes after the Commission concluded that the industry was overcharging customers up to £100 million each year through excessive interest rates and other charges.

The main culprits were found to be store cards which were charging up to 30.9% interest even though the Bank of England’s base rate stands at just 4.5%. The worst culprits were TJ Hughes and the Faith Card who you can see heading the Table of Shame shown later in this article.

In addition, the commission came down on high penalty charges for missed or late payments and Payment Protection Insurance. Penalty charges currently average £15 per event – but the Commission argue that these charges are also excessive.

As for Payment Protection Insurance, the Commission has decreed that whilst this insurance can be a good idea, credit card operators have abused it. Therefore, Payment Protection Insurance must no longer be sold as a package with a credit card; it must always be purchased as a separate transaction. That’ll be good news for the Internet where all the cheapest Payment Protection Insurance deals can be found with premium savings up to 60% in comparison with credit card and loan packed arrangements.

The new rules from the Competition Commission mean:

· If a credit card charges more than 25% interest, it must carry a warning that there are cheaper ways to borrow. These warnings must be displayed on each monthly statement.

· The interest rate and penalty charges must me clearly displayed on the front of every monthly statement.

· The monthly statement must also warn of the consequences in terms of higher interest charges, of only paying the monthly minimum repayment.

· Cards must offer the option for customers to clear their monthly balance each month by an automatic direct debit. This avoids any possibility of interest charges and late payment penalties.

· Credit Card operators can no longer sell Payment Protection Insurance packaged with the credit card. They must be both separate and optional transactions that enable purchasers to see the true cost.

These new rules seem certain to shame retailers into cutting their charges – that’s not to say that 25% pa interest is a snip! Main line credit cards are currently charging circa 14% to 18% and we think that’s too high! Indeed, between 80% and 90% of store cards are charging more than 25% and are held by some 11.5 million customers. But some retailers have already realised that their sky high charges couldn’t be sustained and have taken steps to trim back. Harvey Nichols has already trimmed their interest from 28.5% to 21.9%, River Island has gone down from 29.9% to17.9% and Monsoon from 29.9% to 18.9%.

But who are the bad boys? Here’s our Table of Shame:

TJ Hughes 30.9%
Faith Card 30.9%
Owen & Owen 30.7%
Burtons 29.9%
Dorothy Perkins 29.9%
East 29.9%
Evans 29.9%
HMV 29.9%
JD Sports 29.9%
Kwik Fit 29.9%
La Senza 29.9%
Laura Ashley 29.9%
Miss Selfridge 29.9%
Russell & Bromley 29.9%
Ted baker 29.9%
Topshop/Topmam 29.9%
Wallis 29.9%
Warehouse 29.9%
House of Frazer 29.3%
Bhs Gold Card 29.0%
Habitat 29.0%
Oasis 29.0%
Harrods 28.9%
Fenwicks 27.9%
Selfridges 27.6%
Bentalls 27.2%
Jaeger 27.1%
B&Q 26.8%
French Connection 26.8%
Argos 25.9%
Homebase 25.9%
New Look 25.9%
Note: Some of these cards offer lower rates for payments by Direct Debits
Source: Competition Commission/Moneyfacts March 2006

Have you recently received a batch of cheques from your credit card company suggesting that you might like to use them to treat yourself? No? Well that’s surprising as over 10 million are sent out to cardholders every year.

Beware. If you use the cheques the charges can be high. Purchases sometimes attract a higher rate of interest than standard card purchases and there’s no interest-free period. You may also be charged a handling fee of up to 2%. All these charges swell the credit card company’s coffers by around £57 million every year – so they’re particularly keen on them!

But the Office of Fair Trading and the consumer group “Which” are much less impressed. They are urging consumers to tear the cheques up. They also want legislation to ensure that the credit companies properly inform their clients about the true costs of using the cheques.

Even last year, as part of a wide ranging enquiry into the credit card market, the influential Treasury Select Committee concluded that card companies should stop mailing unsolicited cheques. Their concerns were the cost of the cheques and the way these cheques were encouraging additional debt.

“Which” certainly agrees with the Committee. Their spokesman said “We want unsolicited credit card cheques to be banned, especially as we have found that companies use them to encourage indebtedness”.

We agree.

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The National Debtline which was set up by the Government to help people in financial trouble, is being overwhelmed by callers. A major Sunday paper has reported that 8 out of 10 of its test calls went unanswered even after holding on whilst the phone rang out for ten minutes. The Debtline recognises the problem reporting that January was its busiest month since its foundation 19 years ago and admits that it failed to answer two thirds of the calls made to its telephone numbers.

The Credit Counselling Service and the Citizens Advice Bureau have also reported record demand with hundreds more calls per day than this time last year. And in the last quarter of 2005, bankruptcies were up by 46% over the same period last year.

If this evidence is anything to go by, there are a lot of people out there realising that they’ve pushed the boat out too far when it come to taking on loans, credit cards and other forms of debt.

For those that simply can’t solve their financial crisis, there are two options. An Individual Voluntary Arrangement (known as IVA’s) and Bankruptcy.

IVA’s are a more lenient form of insolvency whereby you pay back a percentage of what you owe, typically 30 – 50%, over five years. But don’t think that an IVA is an easy way out – it’s a legal agreement between you and your creditors and is administered by a specialist insolvency company. If you don’t keep to the agreement you can be forced into full bankruptcy at any time. But at least after five years it’s all behind you and whilst your credit rating will b battered it won’t be out for the count.

The more extreme option is bankruptcy. Under the 2002 Enterprise Act, bankrupts debts can be discharged after just one year as opposed to the three years it took previously. For this reason, more and more people are biting on the one-year bullet. Everything you own other than the essentials for living, become the property of your receiver to be sold to pay off as best as they can, your creditors. Special arrangements are put in place for your home if this is jointly owned.

Then at the end of the year you are free to go your way to rebuild your financial life. Credit will be impossible to obtain for 12-18 months but after that doors start to open and life gradually get back to normal – just learn from the experience and make sure you don’t repeat you mistakes.

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The Office of Fair Trading is at last preparing to take the big banks and other financial institutions that issue credit cards to task over charges. On credit cards, the average fee for exceeding the credit limit has climbed 40% to over £22. The charge for missing or late payments has also soared to over £22.

The OFT believes that these charges represent an illegal and unfair penalty as the banks true costs of dealing with these situations are much lower. So it seems that the OFT is likely to try and cap such charges at a figure closer to £15. The banks certainly won’t be too keen on this, as such a decision would cost them in the region of £400 million per annum. We understand that the OFT could make an announcement in just a few weeks time.

In a parallel action The Bank Action Group is taking legal action on charges levied on current accounts and overdrafts. During the last 2 years bank charges on these accounts have run up by as much as 31%, taking the average to around £30. The Bank Action Groups case is being led by Stephen Hone who is using the same reasoning as the OFT, as he asks the High Court to agree that charges are too high and as such represent an illegal penalty.

These actions are made at a time when the UK’s Banks are booming. The top five clearing banks, HSBC, Barclays, RBS-Nat West, Lloyds-TSB, and Halifax-Bank of Scotland, have recently announced profits up 17% at a staggering £35,000,000,000 – yes, £35 billion!

We think the Banks can afford to trim their charges – don’t you?