Defend yourself in great credit rip-off

Published on Saturday 4 July 2009 14:41

PLANS to help consumers weather the storm of the current recession have been dismissed as "muddled" and "unlikely ever to become law" by sceptical observers.

The government last week announced a raft of measures from new credit regulations to NHS and social care support and help paying electricity bills.

But its white paper "A better deal for consumers – delivering real help now and change for the future" is a consultation exercise which will not finish until Christmas. Whatever the outcome of that consultation, it cannot be implemented before the next general election.

On the credit front, most of the issues it raises have in any case already been picked over exhaustively in the past.

A key recommendation, banning credit card cheques, is widely welcomed, and so it was when government previously announced it would be ridding the public of these accursed instruments back in March. Indeed we first heard they were to be banned on the orders of the Office of Fair Trading three years ago.

These cheques, which are sent unsolicited to customers, are viewed as a menace, for causing over-indebtedness, not least because of extortionate terms and charges. Banning them will be included in legislation under way in autumn.

Other changes such as the introduction of a 14 day cooling- off period, whereby someone signing up for a credit deal can change their mind and back out, were due to come in anyway under an EU directive.

In addition to these previously announced measures, the government is proposing reviews of extortionate credit, where consumers are charged more than 50% interest, store cards and door-to-door lending. But watchdogs from the Office of Fair Trading, Competition Commission and Treasury Select Committee have all recently investigated these issues. The outcome of months of work in almost every case was simply to call for more transparency and better consumer education.

This government has already specifically rejected calls for caps on interest rates in an earlier review into consumer credit.

The White Paper also sets out plans for a new Consumer Advocate, who would work closely with Consumer Focus, or the National Consumer Council as it used to be called, and would give the body greater teeth.

How it would work is not yet clear, although the idea seems to be that it would act as a consumer champion and rallying point for the disgruntled. It could even organise and pay for class actions against rogue traders. This, though, would seem to overlap with the current role of Trading Standards departments, and it is not obvious where the money for expensive litigation would come from.

The intention is for an advocate to be appointed early next year, even though the legislation to establish such a role may not reach the statute book for another two years, if ever.

A spokesman for the Department of Business, Schools and Innovation, which is spearheading "A better deal for consumers", said the hope was that in the light of the white paper, banks and other credit companies would unilaterally introduce the changes it proposes.

Better still, consumers should immediately adopt their own self-defence strategy. Scotland on Sunday leads you through the top rip-offs, with some tips on how to protect yourself.

How to fight a hike in interest

Borrowers who build up huge debts they are struggling to pay, can fall deeper into the red when the lender suddenly hikes the interest charges, claiming he is entitled to under the terms of the contract.

This is an enormous problem, as many credit agreements include weasel words in the small print allowing lenders to do pretty much as they please. The government is rightly promising to stop this practice.

However, existing laws already protect consumers. Under the Unfair Contracts legislation any contract allowing lenders to behave in a cavalier way towards their customers would likely be considered illegal.

Solution: If your lender arbitrarily hikes your interest, threaten to sue for breach of the Unfair Contracts legislation. If that doesn't do the trick, complain to the Financial Ombudsman, who has already found in consumers' favour in some such cases.

Why you are not high risk

Sometimes lenders try to argue that if your circumstances change you are no longer a good risk, and they are entitled to charge you considerably more because you are now a bad risk.

Solution: Again, complain to the Financial Ombudsman, which has taken a tough stand in such cases, demanding hard evidence to justify the lender's change of approach. In most cases the bank or credit card issuer turns and runs, because such evidence does not exist.

Get your priorities right

Credit cards have become more flexible but infinitely more complicated of late and few people truly understand how they work. Some people pay off their bill each month, which is fine as long as they get their payment date correct.

If you don't pay off each month, then interest is charged at a particular rate. Then it is important to know the difference between your payment date and your statement date, to time purchases in a way which keeps interest down.

But bigger problems arise when you transfer a balance from another card, perhaps because it has a zero interest offer, and also use the card to make purchases, and even cash withdrawals. All these transactions will carry a different interest rate. What customers often fail to understand is that usually the cheapest debt is repaid first, which means you go on paying the highest interest for longest, and may receive little benefit from the zero offer.

Solution: Get more than one card, and keep purchases and balance transfers separate. Don't use your credit card for cash withdrawals.

Protect your credit limit

The government promises to stop banks increasing your credit limit without your request. The bigger problem right now is what to do when your credit card issuer unilaterally slashes your credit limit.

This can happen as a general review of the card base, and is not necessarily a personal reflection on your ability to pay. Solution: Write to your bank, and explain why you need a higher limit, and why you can afford it. It is more likely to happen if you are not using the card. If you need a higher limit, then use it, but pay off the bills each month.

Make banks pay up

One of the advantages of a credit card is the consumer protection is offers. If you are in dispute with a retailer over a transaction paid for by credit card, provided the item cost more than 100 and less than 30,000 your bank must pay up. They often try to wriggle out of their responsibility by telling you to sue the retailer, but they have joint liability.

Solution: send them a copy of Section 75 of the Consumer Credit Act

Don't share accounts

Only the main credit card holder is covered by section 75, not the secondary card holder.

Solution: keep separate accounts