Wednesday, April 11, 2007

Oooh those naughty banks are right rotters!

Wednesday, April 11, 2007

Money Saving Expert of TV and radio fame, Martin Lewis, has been harping on about reclaiming exploitative bank charges recently. Barclays, for example, charge you £35 each time you fail to pay back your credit card balance on time. Financial analysts with letters after their names have established that it only costs the banks £4-ish in administration charges to process these deficits so the rest is just beer money.

Despite the hefty charges, the same people are continually going into the red and so have been racking up fees totaling many thousands of pounds. Martin has put together a template letter for you to fill in and submit to your bank to reclaim the unjustly pilfered funds and people have been doing this in their millions throughout the country.

This is all well and good, but it's a lot of hassle so I'm here to offer my guide to good money management. Can I have a drum roll please?

...

OK, here goes. If you spend more money than you've got in your bank account, the figure on the bottom line of your statement becomes negative and that's bad because the bank tells you off and takes more money you don't have. The secret is - wait for it - to only buy stuff when you can afford it. That way the numbers on your statement stay black and you don't end up living on the streets.

Now of course there are worthy exceptions to every rule. Say you've got an arrangement for money to be automatically deducted from your account to cover essentials like rent or mortgage repayments or bills and then unexpectedly you lose your job. It's the ones who spend £100 on a handbag and then are shocked to discover that they're broke. No, more than broke, they're severely bankrupt.

Which is another rant in itself. In Britain, if you become very, very bankrupt and have no way of getting back on an even keel (besides getting one of those job thingies, being frugal and paying back the money over a long period of time) you can opt to just right off your debts and start afresh. You're barred from owning a credit card for a while, but other than that you're free to go on another shoe shopping spree at Harrods the next day. Handbags and shoes? This is all starting to sound very sexist isn't it. I didn't mean it to. Just as many men are useless with money, and the ones with handbag and shoe fetishes are the absolute worst offenders.

To sum up (Congratulations if you're still awake. If not, you smell and your nose looks a bit funny and you can't hit me for saying so because you'll never read this): that £35 fine is supposed to be excessive because it's intended to act as a deterrent. You agree to it when you sign the credit card contract with your bank so it's a bit rich to moan about it now. Banks exist to make money. If you don't have any invested with them they can't reinvest it elsewhere. They aren't going to give you money for nothing over and above the 0% interest 28 day repayment policy (which they also profit from) out of the goodness of their hearts, so don't give them the satisfaction of reeling in your debts.

Anyway, look on the bright side. It's only money - it's not as if Barclays are going to come round to your house and repossess your legs is it?

7 comments:

Ian

Quite often it's not "despite" the charges, but because of them that people keep going into the red. If they're charging £35 to bounce a direct debit for £10 or because the cheque you paid in a day later than normal hasn't cleared yet then that's excessive. And as direct debits tend to come in clusters that charge will nock on and you'll be charged for the next one as well, etc. etc. before you can do anything about it. When you're in that situation it certainly feels like the bank is taking advantage of you, racking up money you'll have to pay back eventually.

Alex Fear

Plain Wrong.

Let's leave out the fact that charges above £12 are illegal under UK law. More often than not, the people who get hit with these charges are the ones who cannot afford to stay out of the red- low income earners or self-employed specifically. Many of the middle classes (or at least paid comfortably) choose not to challenge the illegal charges.

But it's more immoral than that. A charge of £35 for a task that costs £2 for being overdrawn of just (eg) £5 puts someone £40 overdrawn. To a person living on a low income who finds themselves close to £0 every month, this makes a huge difference on whether or not they go into the red.

In fact, this would cause them to go overdrawn every month for the next few months (So £35 becomes £70, £90 and so on) due to that one charge- NOT because they are overspending! This has the opposite effect of what you are implying- the charges cause people to be unable to put their finances in order!

Banks could easily stop people going overdrawn- locking the account at £0 but instead they want people to go in red, they let the money flow!

Finally, the banks deserve this. Why? you ask (no it's not because I'm a red-blooded marxist), it's because they have prospered in and encouraged a society where it is very difficult to live without a bank account. Some companies won't even accept cheques as payment anymore and insist on direct debit.

Of course we are within our rights to request cash payment from our employers, and pay by cash. But the cost of time and defeat every time we had to:

-explain our reasons for paying cash
-be unable to pay for some services
-travel and make face to face transactions
-be subjected to weird looks

It would not be worthwhile.

There is no excuse for these excessive charges. For a multi-million pound corporation to claim that ordinary Joe Bloggs struggling to get by on minimum wage is somehow treating them unfairly or depriving them of profit is ridiculous.

And no I am not on minimum wage myself. I just give a damn about less well off and vulnerable human beings.

BTW if charges were 'fair' then perhaps it should really be taken as a percentage of what the person pays in, rather than a flat rate. Perhaps then you would feel what the poor feel?

dreamkatcha

Yes, I can see how people on low incomes can get into such a mess financially, and clearly the banks are exploiting the situation, but the onus is still on the consumer to manage their money more effectively. Why are they sailing so close to the wind in the first place?

I'm not a raving, flag-waving capitalist in the least, merely a pragmatist. My intention was to point out that if people took their responsibilities more seriously they wouldn't find themselves at the mercy of unscrupulous, faceless corporations like the banks.

As soon as I was old enough to own a credit card, the nice people at Barclays sent one to me in the post. I opened the letter, realised what it was, chopped it up with the scissors and binned it. I've never owned or used one since.

Debit cards are a different matter. You pay in money you've earned and only spend what you've got.

Ultimately you should cut your cloth to suit your budget. I know a single parent mother of two who works part time in a low paid job and has never paid the bank a penny in overdraft fees. She manages to stay afloat by being frugal with what little she has. She buys her clothes at charity shops and food at discount supermarkets like Aldi and Lidl. If there's something they want, they save up for it until it can be paid for with real cash. They don't lead a flashy lifestyle, but those kids will grow up to respect the value of money.

After work when many people would be in the pub, she goes to night classes to gain the qualifications she needs to claw her way out of poverty and give her children a better quality of life.

Being poor doesn't necessitate being a slave to Barclays et al. Only a few generations ago the concept of 'credit' would have been totally alien to our grandparents and yet they seemed to get by OK.

Alex Fear

Perhaps I was a little strong and I understand your sentiment.

But there are so many ready to dismiss those in difficulty by telling them it's their own fault- yet not offering a solution.

And yet why are companies so easily defended when they break the rules?

But something I should have added is it's not just a fact of balancing your budget. There are times when a crisis comes along and you have to spend a lot more money than usual -I had one last month £350 on car maintenance/repair. Thankfully I could afford it (this time last year I would be facing an extra £30 charge from the bank however).

My own mother is what you described, and she has always told me not to get into debt. What she didn't explain is that some debt is a necessity these days (car, house, emergency) and how to manage it correctly. Can we blame parents who were not taught themselves? If there is blame to be laid it's at the government for not teaching financial education in schools.

One more thing about our elders. Back then, things called 'social networks' existed, with extended family and friends would give money and help out where needed. In our increasingly individualistic, rat-race modern society, these networks are dying out and so we only have loan sharks and banks.

Martina

Interesting post. It seems like people complain about this everywhere (and by everywhere, I mean at least your country, Germany and the US). My aunt in Germany complains about it. You can't turn on the news here either without encountering an story on bank fees, predatory lending practices, etc. One can hear heartbreaking stories about Katrina victims who have lost everything, then were approved for and naively accepted ridiculously lines of credit for their income levels, thinking that it would give them a boost to get on their feet and that somehow they'd miraculously come up with the money to pay it back. That kind of story is tragic and is a good example of why banks need to be regulated. On the other hand, I also know individuals who have purposely run up extra high debt, knowing they were going to file for bankruptcy, which is equally unsavory.

My point is that it becomes a complex question, especially when circumstance is factored in. Ultimately, I think the "truth" lies somewhere in the middle. While some institutions do have some shady policies designed to keep people in the red, I agree with you that doesn't absolve the individual of all responsibility. I do have a lot more sympathy, however, for someone who is forced into debt by a social situation (especially one brought on by a government's lack of adequate response) than for those who just know how to work the system.

It seems sometimes like it's all presented too "either/or" where either financial institutions are the big bad wolf or the consumer is some power tool buying, beer swilling, sports car driving bozo with no care for how much he can actually afford (as a handbag carrier, you've thrown down a guantlet with your examples that make me feel duty bound to now be male biased :-)).

Martina

p.s. When I said "It seems sometimes like it's all presented 'too "either/or'...", I didn't mean that you were a stranger to nuance. I just meant generally speaking. Ok. Now I can leave in good conscience.

dreamkatcha

No harm done, Alex. I know it's an emotive subject. :)

Yes, according to vague laws relating to companies not being allowed to charge you a fee which is disproportionate to the cost of the incursion, what the banks are doing is illegal. However, until a precedent is set in the courts which specifically cites bank charges they can effectively do what they want (as long as they are happy to keep settling out of court as they have been doing).

It's an odd one because fines aren't usually used solely as a means of recouping incurred costs. For instance, if you applied the same logic to speeding fines you could argue that it's our right to be able to claim those back too. Obviously this wouldn't be helpful because people would worry far less about being busted for speeding if the penalty was only a few pounds.

I wonder if the banks could sidestep a future clampdown by manipulating the terms used in their contracts. A £35 'fee' would be condemned to a greater extent than a £35 'fine'.

You make an interesting point about being taught financial management in schools. Budgeting was covered in the business studies class I took, but that was an optional GCSE course so most people would have missed out. I don't remember learning anything relevant in PSE (personal and social education) which was a compulsory lesson and started at age 11.

Martina, true, it's disgusting the way the Katrina victims were treated. They were stabbed in the back by the government, and without the generosity of charities like the Red Cross they really would be in dire straits.

If insurance companies refuse to cover 'acts of god' like hurricanes or charge unrealistic sums for doing so, the brunt of the support should have to come from the government. It's not unreasonable to expect a proportion of tax money to be allocated to crises like this. The less said about FEMA the better, eh.

Lol, you wouldn't find many British men going into debt to buy power tools. The very last thing we want to spend time and money on is DIY. Beer, I'll give you. Not literally, but you know what I mean. ;)

'Safety nets' (in the form of benefits) are an important factor in all of this I believe. You have to have them, but if they're not balanced sensibly people will throw caution to the wind and take advantage.

Better means testing could be the way forward, though in many cases research suggests that this would cost more than offering blanket handouts.

I take your point about seeing these situations as black and white. I'm not immune to it, I admit. I think that it arises because sometimes only the the extremes at either end of the spectrum have the power to break through our attention deficit barrier.

"Jane manages her budget effectively and lives comfortably" as a headline wouldn't sell many newspapers. ;)

 
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