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Mortgage and Credit Card Companies Under the Spotlight on
Consumer Charging
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) 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 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) 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.
Resources:
Government - Office of Fair Trading
Mortgage and credit card comparisons - Moneynet
Bio:
Richard lives in Edinburgh, occasionally writing for the personal
finance blog Cashzilla, and staring out the office window when he
should be working.
 MORE RESOURCES updated Thu. February / 09 / 2012
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