Perils of catalogue debt

Pressure on household finances is causing thousands more people to fall into unaffordable debt with mail order catalogues, according to the debt charity, the Money Advice Trust.

National Debtline, which is run by the charity, received a record 25,000 calls about catalogue debt last year, up 10 per cent on the year and nearly double the number received in 2007 before the credit crunch.

It's had a further 7,000 calls so far this year.

Families on tight budgets have been turning to catalogues to take advantage of keen prices and offers to buy now and pay later with no interest.

Then they find they can't settle the bill.

Catalogue debt is prompting more calls for help than payday loans, mortgages or rent.

The Trust says many people don't realise they are signing a consumer credit agreement, which means the debt is enforceable in the courts.

Nor do they understand that missing a payment on a catalogue debt will usually invalidate any special zero per cent interest deal.

Clampdown on payday lenders

The government has announced that payday lenders and other providers of short-term credit will face much tougher regulation when a new watchdog body, the Financial Conduct Authority, starts work next year.

Ministers have promised that payday lenders will face more rigorous checks before they can set up in business and there will be more resources devoted to investigating their tactics once they start lending.

If customers are ripped off, the FCA will have the power to impose unlimited fines - compared with the maximum penalty of £50,000 which the Office of Fair Trading can impose at the moment.

The announcement came with the publication of the Financial Services Bill, which confirms that the new FCA will take over responsibility for policing consumer credit.

The FCA also assumes the consumer protection role of the current Financial Services Authority, charged with trying to make sure that scandals such as pension, endowment and PPI mis-selling don't happen in future.

Payday clampdown

The Office of Fair Trading  is taking enforcement action against payday lenders who are flouting guidance on online advertising in the run-up to Christmas.

In a sweep of a sample of firms it found that some were not checking whether customers could afford to borrow or coming clean about charges for going into arrears.

A number were unclear about the loan terms and failed to explain the contract.

The OFT has not named the firms involved. They could be stripped of their Consumer Credit Licences or simply be forced to change their practices.

The consumer watchdog has started to check advertising on the websites of 50 further firms.

A BBC viewer, Andrew Beattie, complained today that he'd received a text from a payday lender, saying:

"Need extra cash for XMAS? Get cash in your account TODAY. No paperwork or checks."

"Many people may be tempted to follow this up, with no doubt dire consequences," he warns.

In a report sent today to MPs on the Business, Innovations and Skills Select Committee, the OFT says that complaints about the lenders to Consumer Direct rose to 1,535 in the first eleven months of this year, up from 700 in the whole of 2010.

Short-term payday loans have boomed. The market is worth about £2bn a year.

But there are serious concerns about the business practices adopted by some players.

Top of the OFT's list of worries is the misuse of continuous payment authority, which allows a lender to take funds from a borrower's bank account even if the account is overdrawn.

Next comes the rolling over of loans which can result in debts escalating out of control.

But irresponsible advertising and selling tactics have also become a major worry.

How people have been paying off debt

Given David Cameron's non-words about people paying off credit cards etc, here are some stats which show how consumer credit has shrunk.

The headline figure is the Bank of England's number for outstanding consumer credit, up to end of August.

It's the one which includes credit cards, personal loans and overdrafts, not mortgages.

The total was £209bn, a figure which has fallen steadily since it reached a high of £236bn in September, 2008, just before the recession struck.

Within that, outstanding credit card lending stood at £57bn, down from £62bn in January, 2010.

Other credit, including personal loans and overdrafts was at £152bn. It's been flattish this year, after peaking at £180bn in July, 2008.

From Bank of England

Rogue debt firms lose licences

The Office of Fair Trading has revealed that 62 debt management firms have lost their licences in the last year, after a crackdown on rogue operators.

Some fee-charging firms have been criticised for misleading customers about their charges and for giving incompetent advice.

Others have been told to stop cold calling customers or pretending that they are charities or from the public sector.

They have to be licensed under the Consumer Credit Act in order to offer their services to people who have serious debt problems.

The 62 have had their licences taken away, been refused licences or surrendered them to the OFT.

The action comes after the watchdog issued warnings to 129 firms last September.

Credit card refund for laptop

From Financial Ombudsman Service last week...

Complaint about faulty laptop bought with credit card.

Miss T’s new laptop developed a serious fault just six weeks after she had bought it, so she took it back to the supplier and asked for a refund or replacement.

The supplier told her it was unable to help. It suggested that she should get in touch with the manufacturer, who would arrange to inspect the laptop and then decide whether to repair or replace it.

Miss T explained that she was busy revising for her college exams and could not afford to lose study time while the laptop was out of action. However, the supplier was adamant that her only course of action was to contact the manufacturer.

Concerned about the amount of time this might take, Miss T then visited a different supplier, where she used her credit card to buy another laptop.

She had used her credit card to buy the original laptop and a few weeks later, once her exams were out of the way, she contacted her credit card provider.

She explained the problem she had experienced with the original laptop and said she wanted to claim a refund.

However, the card provider told her it could not help because it was ‘not responsible for the quality of goods bought with a credit card’.

Miss T arranged to have her laptop inspected at a local computer centre and was told that there was a problem with the motherboard.

She subsequently obtained another report on the laptop from an independent computer specialist. This confirmed that the motherboard was faulty – and said that replacing it would cost more than the value of the laptop.

Miss T then referred her complaint to us.

Complaint upheld

On the basis of the evidence supplied by Miss T, we said that the laptop was not fit for purpose, as it should not have developed a fault of this nature so soon after Miss T had bought it.

We noted that Miss T had attempted to reject the laptop as soon as the fault became evident. She had only bought a replacement because it was essential for her studies and because the retailer had failed to deal correctly with her complaint.

We pointed out to the card provider that it was jointly liable with the supplier for any breach of contract.