Consumers who are struggling with their finances and are thinking about appointing a debt management company to help them get out of debt – by re-negotiating terms with their creditors – have been warned to be aware of the charges involved in the process.

A report issued by Money Advice Trust has revealed that many debt management companies are guilty of poor practice.  Its report was based on research carried out by the Personal Finance Research Centre at Bristol University.  Money Advice Trust is a charity formed in 1991 to increase the quality and availability of free, independent money advice to people with debt problems.

The findings in the Trust’s report reveals many debt management companies failed to sufficiently highlight the costs and charges involved in arranging a debt management plan.  The key findings were:

• Some consumers were not fully informed of all the charges and costs involved in the arrangement until late in the process
• Some consumers even felt they were worse off than before they contacted the debt management company
• Some debt management companies did not make clear, from the outset, that in addition to an initial set-up charge, ongoing fees eat into the monthly repayments of those borrowers unable to meet former terms

Money Advice Trust said that it was important that debt management companies treat their customers fairly by providing information about charges and costs upfront in a clear and fair manner.  It also said that consumers struggling financially should also be made aware of the availability of free debt advice and debt management planning.  One such free service is National Debtline which the Trust funds.  National Debtline receives more than 40,000 calls every month.  Visit www.nationaldebtline.co.uk for more information.

The fee-charging debt management sector, which differs from simple debt consolidation firms, has grown threefold over the past decade.  There are now more than 150 debt management firms in the UK.  The Office of Fair Trading regulates the sector and is due to start a fresh investigation into debt management companies as its guidelines have not been reviewed for six years.

© UKfinancemarket.co.uk

Credit card provider, Egg, has launched its new Egg Money World MasterCard credit card, which charges an annual £12 fee.

Egg is the first major card provider to apply an annual fee in recent years.  Many commentators believe this move by Egg could see other major credit card firms follow suit.

Credit card firms are looking at other ways of generating revenue following the Government’s clampdown on the credit card industry which will mean an end to lenders unilaterally raising borrowers’ credit limits without their consent, sending unsolicited credit card cheques or increasing interest rates on existing debts; methods credit card firms had previously used to generate substantial profits.

The Government’s clampdown is detailed in its Consumer White Paper published last week.  Part of the recommendations is a proposal to increase the minimum monthly repayments so that card holders repay their debt sooner, as well as looking at the order in which debts on cards are repaid, to ensure the most expensive ones are paid off first.

The new Egg Money World MasterCard credit card will offer 1% cashback on all purchases, up to a maximum of £200 a year.  Therefore, savvy card holders can recoup the annual charge with relative ease.  However, the typical APR is 17.8%.  Therefore those card holders that fail to pay off their balance in full each month will lose the benefit of the cashback offer.

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The Government has today announced measures to reduce the number of consumers spending their way into debts that they will never be able to repay.

UK consumers now owe over £233 billion on credit cards, overdrafts and other loans, according to the Bank of England. This figure is rising by the day as an increasing number of consumers face financial difficulties during the recession and try to spend their way out of trouble using credit facilities.

The Government also plans to create a Consumer Advocate who will be responsible for fighting the consumers’ corner on cases of “national importance” by referring cases to court on behalf of groups of consumers seeking compensation and refunds.

Details of the Government’s new proposals on reviewing credit facilities for consumers have been revealed in a White Paper released by The Department for Business, Innovation and Skills.

The main area of concern for the Government is credit card companies sending blank credit card cheques unsolicited to consumers. The problem with credit card cheques is that they invariably incur additional charges, have no interest-free period, as with credit cards, and they do not provide the same level of consumer protection if things go wrong. Notwithstanding this, the interest rate charged on credit card cheques is typically over 25%, on average. And unlike credit cards, there is no interest-free grace period on spending – interest is chargeable from the day the cheque is cashed. Using credit card cheques is only suitable in a very limited number of circumstances.

Consumers who are struggling financially may not worry about such matters if a blank cheque arrives through the post unsolicited and perhaps see it as easy money to spend their way out of trouble, but this often exacerbates the situation. Under the new proposals consumers can still receive credit card cheques, but will need to apply to receive them, rather than receiving them unsolicited.

In addition, the Government is concerned by the number of credit card companies who unilaterally apply an increase on consumers’ credit card limits – even though many consumers do not even request an increase. Again, the worry is that consumers who are struggling financially will spend up to the increased limit, which will make the situation worse by building up further debts they will never be able to repay, rather than seeking help with their finances earlier.

The Government also wants a review of card fees and charges to be conducted – particularly where credit card companies apply an increase in the interest rate payable on existing borrowings, or increases the minimum monthly repayment amount.

In addition to a ban on credit card cheques being sent unsolicited, the Office of Fair Trading will also be undertaking an investigation into pay day loans and door step loans where interest rates are typically over 50 percent.

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The consumer watchdog, the Office of Fair Trading (OFT), has released a report which reveals that almost 33% of UK consumers do not shop online because of fears that the system is not secure and that they may be the victims of online fraud.

Despite internet security improving massively over recent years, the OFT said that this continued fear among UK consumers is thwarting online shopping from reaching its full potential.

The OFT noted that 20% of internet users declined to do their shopping online because they still had concerns about the security of their personal details.  A further 15% of users didn’t want to shop online simply because they didn’t trust the online retailers.

Online shopping has increased massively over the past few years and there is no doubt that it is the future for many retailers and businesses across many sectors.  The Government is keen to increase the number of people doing their shopping online because of the importance it will play in the recovery of the UK economy.  Clearly, however, if a large proportion of UK consumers continue to hold fears about the security online shopping then it is clear that growth in the market will be slower and will take longer to reach its full potential.

Despite these findings, it is apparent that more and more UK consumers are beginning to trust and buy into the idea of online shopping.  A similar study carried out in 2006 revealed that just over 25% of internet users considered it safe to shop online – this compares to 55% of users in the most recent survey.  In addition, UK consumers do significantly much more online shopping than other European consumers.

It is clear that online shopping in the UK for all types of products and services, such as clothes, electronics and finance products such as credit cards and car insurance will increase.  Hopefully with ever-improving internet security, more and more UK consumers will begin to have confidence in and trust the internet.

The UK Payments Association, Apacs, has released figures which reveal that consumers’ use of cheques continued to decline during 2008, while the use of debit and credit cards continue to increase.  The figures reveal that despite the dire state of the UK economy during the second half of 2008, there was no noticable change compared to annual trends seen in previous years.

During 2008, total spending on debit cards in the UK amounted to £245.4 billion - almost 10% more than 2007, and nearly double the £126.2 billion consumers spent on credit cards.  In contrast, consumers only made payments totalling £180.6 billion by cheque – nearly 7 % less than 2007.  However, cash remained the most popular choice for consumers when spending in shops and online shopping, on travel and entertainment and financial transactions such as savings or debt repayments.  Cash payments for 2008 totalled £267.1 billion.

However, automated payments accounted for the largest proportion of total consumer spending in the UK at £333.1 billion during 2008 – almost 7% more than 2007.

Debit card use in 2008 dominated the retail landscape with consumers spending £116.1 billion on their debit cards which accounted for 43% of all retail spending in the UK.  The use of credit cards in high street shops and online shopping sites declined slightly, falling by 0.6% to £60.7 billion or 23 % of all retail  transactions in the UK. 

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Internet security firm, Symantec, has issued shocking figures which reveal the full extent of on-line fraud.  During 2008, the firm produced nearly 2 million pieces of anti-virus software to repel more than 245million attempted on-line attacks across the world every month.

Hackers are using increasingly sophisticated techniques, such as spreading viruses, to infiltrate consumers’ PCs to obtain passwords, personal bank details and email addresses.  Once that information is retrieved, the hackers then sell the information in shady on-line chat rooms.

The biggest risk posed to consumers and the finance industry is that of credit card fraud; all a hacker needs is the card holder’s name, card number, expiry date and three digit security code to open a gateway to potentially millions of pounds’ worth of fraud.

Once installed on a PC, viruses will monitor and report back to the hacker on any information sent, received or saved as well as searching for passwords for websites.  It is therefore important that consumers who conduct their financial affairs on-line are vigilant and have adequate anti-virus software protection installed on their PC, and that they frequently update the software to repel new viruses.  Those consumers who may not even conduct their financial affairs online could also be at risk; consumers who use social networking sites typically divulge considerable personal details on their social networking profile which hackers use for the purposes of identity fraud.  It has been reported that identity fraud costs the UK an estimated £1.7billion every year.

Fortunately, consumers who are victims of card, cheque and on-line banking fraud now benefit from a simpler process in reporting and complaining about the matter.  On 1 April 2007, new procedures came into effect in the UK for consumers who are the victims of card, cheque and on-line banking fraud – this followed the implementation of provisions in the Fraud Act 2006, which is designed to reduce and simplify the level of administration involved in recording, reporting and investigation into such fraud. 

This new legislation means that banks and credit card companies become the consumer’s first point of contact for such offences, rather than the police, as used to be the case prior to 1 April 2007.  It will then be up to the financial institution involved, rather than the consumer, to pass details of the relevant crime on to the police.  However, where an additional crime has been committed with the fraud – for example, the consumer was the victim of a mugging and had their wallet stolen or their card was used fraudulently after a burglary, then this should still be reported to the police.  This is because fraud other than card, cheque and online banking fraud will still be dealt with by the police.

According to a recent survey conducted by a money comparison website, credit card companies are currently charging rates of interest at their highest level in two years – this is against the backdrop of the Bank of England reducing it’s base rate to a record low of 0.5%.   The disparity between the rates of interest typically being charged by credit card companies on their interest-charging credit cards compared to the record low 0.5% bank base rate is estimated to have generated the credit card companies extra annual income in excess of £700 million.

If you have interest-charging credit cards it would make financial sense to seek to obtain an alternative cheap 0% balance transfer credit card.  Depending on the size of your balance to be transferred, this could save you serious money on interest payments each month.  While there are many credit card companies offering 0% balance transfers and 0% on credit card purchases, it is important to read the small print on the card provider’s website since there may be slight differences in the fees charged by the card companies for transferring the balance or on 0% purchases.  For instance, most credit card companies will typically charge you 2% or 3% of the balance to be transferred as a fee.  The 0% interest-free period can range from anything from 6 months up to 15 months so check this also.  Otherwise you could be in for a shock at the end of the interest-free period if you suddenly have to start paying interest on the money you owe on your credit card.  UKfinancemarket recommends that you make a note in your diary or calendar about when the interest-free period on your credit card is approaching so that you can plan ahead, by applying for another cheap 0% balance transfer credit card.

At UKfinancemarket.co.uk we have teamed up with several lenders to provide you with access to the most competitive credit cards available in the UK.  Whether you’re looking for a credit card that offers 0% on balance transfers, or a credit card that offers 0% on purchases you should be able to find the right credit card for your circumstances within minutes.  See our credit cards section.