Re: Government proposes crackdown on credit card companies
Following the Government announcement that they intend to crack down on the rules surrounding, there has been a lot of conjecture of how it will affect consumers. One fear is that raising the level of minimum monthly payments will "Push people over the edge." Surely if the only thing keeping them from sinking financially is the fact that they can service interest charges only, they are ALREADY OVER THE EDGE AND HALF WAY DOWN THE CLIFF FACE!!!
In my role as a debt counsellor I continually meet and speak to people who are "Managing their debts" however, the only way the are doing so is in their own heads! If they are paying £100.00 pm as a minimum payment, with £15.00 reducing off the balance and STILL USING the card, their debt is increasing. How can that ever be regarded as managing debt?
The general population of this country is on the brink of bankruptcy thanks to the credit explosion and it's only their access to further credit that defers the inevitable. If the vast majority of Britons were to lose their income for 3 months they would disappear without a financial trace!
Gone are the days when people used to live within their means, they now live well beyond them. The days of instant gratification are leading to a future of financial penance. The ads say, "Why wait, buy now and pay later!" What they really mean is, BUY NOW AND PAY FOREVER!
The people who have the power to change things are the ones holding the purse strings and they have no wish to derail their own gravy train! The credit card giants make phenomenal amounts of money by pedaling their wares to susceptible and often desperate people and are in many cases often worse than loan sharks.
How can I justify such a claim? See for yourself in the example below which is from a genuine case. MBNA are not to be singled out here as being any better or worse than any other company, all credit card companies operate in similar ways although they do have their unique policies.
A former client (after his circumstances worsened he filed for bankruptcy) had an MBNA credit card with a balance of £14,500. The first question has to be, "How the hell did they let that happen?" He was paying £235.00 pm as a minimum payment, out of which only £18.00 was coming off the balance!!!
He was paying approximately £150 interest and also (again approximately) £70 PPI (Payment Protection Insurance) which was an absolute travesty as he was self-employed. PPI cannot pay out to self-employed people as they cannot be made redundant or sacked! This was therefore a classic case of miss-selling a product!
If you divide £14,500 by £18.00 (the amount the balance was reducing each month) it would have taken in excess of 67 years to clear it! In that time he would have paid back a total of £189,305.55! Yes, you did read that correctly.... One Hundred and Eighty Nine Thousand, Three Hundred and Five Pounds, Fifty Five pence!!! Quite a return for the companies involved don't you think! Maybe this is why they are reluctant to change.
That obscene, mind-boggling amount equates to 1305.55% interest and charges! Now tell me who the loan sharks really are? Obviously this was not all going directly to MBNA as there was the insurance company involved, but MBNA will have had their share of the profits for an illegal policy.
As stated, this is not an isolated incident that can lay blame at the door of a single credit card company and in no way suggests they are any better or worse than any other. It is however a real life illustration of just how bad things can get.
Also bear in mind that the client had already been paying them money for years prior to requesting my assistance, so there will have been many more charges along the way!
In view of the above I feel that if some people get "Pushed over the edge" it will be very unfortunate for them, but that it really needs to happen in order to help stop the rot. What we need now is education in the ways of debt and how life destroying it can become.
Maybe people need to go back to the good old ways of only buying what they can afford? Wouldn't that be a radical change? It would mean major problems for the Government however as they've been enticing people to use credit to subsidise their lifestyles.
If that facility is taken away the public will very quickly become disillusioned with their standard of living and it would be likely to spark a round of industrial action, pay increases and an inflationary spiral. There lies the problem, is the Government likely to force change and make themselves the pariahs of society?
So the reality must be that debt is here for a very long time and we have to learn to live with the consequences!
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