Money news, advice and predictions for savers and spenders.
By Jeremy Gates
When the Bank of England recently confirmed the biggest rise in inflation since records began - up 1% in a month to 2.9% - the position of those heavily in debt suddenly looked much more exposed.
With VAT going back up to 17.5% in January, inflation could exceed 3% in February. If the Government pushes up rates earlier than expected to restrain prices, it will strain many people who are struggling to cut credit card debt.
Despite the growth of debit cards, we still owe nearly £65 billion on credit cards. The figure is slightly below the record £69.2 billion in 2005, but it remains high even though nearly two thirds of Britain's 30 million credit card holders pay their bill in full each month.
As The Spectator magazine grimly predicted in October: "As unemployment rises and fresh credit dries up, many people will be unable to pay enormous debts run up on their card accounts."
The risks of carrying huge debts on credit cards have been evident for months. Although the average interest rate (APR) on credit cards is 16.9%, many charge 20% or more and some store cards charge nearer 30%.
The Vanquis Bank Visa card, for those with poor credit ratings, charges 39.9% on purchases, and 49.94% on cash advances, if they are not fully paid off on the monthly statement.
Anybody holding serious levels of debt at these rates faces hefty interest charges for years to come.
Against this background, debt-laden cardholders will have had their hopes raised when Cartel Client Review (CCR), which calls itself Britain's largest and fastest-growing financial claims company, claimed to have found a loophole which could allow many to escape card debts.
Carl Wright, CCR chief executive, says that a judgment handed down by Judge David Waksman just before Christmas means lenders cannot enforce debts unless they can provide a "true copy" of an original agreement, according to the 1974 Consumer Credit Act.
If a lender cannot provide this copy within 12 days of a borrower asking for it, the debt is unenforceable until it can be provided, says Wright.
If banks unilaterally amended credit agreements while they were in operation to boost profits, these could also be invalid - unless the debtor got notification of the new terms alongside a copy of their original agreement.
Wright says: "This ruling will clearly open the floodgates to a large volume of claims in 2010 and provide consumers in the UK with legal justification for seeking redress, where they have been disadvantaged by the terms of their credit agreements.
"It is estimated by claims management experts that this judgment could precipitate in excess of one million claims in 2010.
"This figure is expected to dramatically increase, once consumers are informed that what was previously a speculative claim now has the full authority, not just of the Consumer Credit Act, but also of the High Court."
Wright claims 250,000 people with serious card debts have registered claims with his company - which stands to collect 30% of any award if and when any claims are eventually upheld.
Wright urges every consumer with card debts to get their credit agreements checked and their debts could possibly be written off.
If he is correct, the banks and card companies could be forced to write off billions more if customers can convince a court that they were treated badly.
A formidable lobby is building up to present a different interpretation of the case: that card holders in trouble have only a slender chance of escaping their obligations.
Andrew Weinberg, commercial litigation partner at Manchester-based solicitors Kuits, has been advising lenders, including Allied Irish Bank, in recent months.
"It is certainly the case that consumers have a statutory right to request a copy of their originally executed loan agreement on payment of a £1 fee", he says.
"Banks and credit cards companies are not perfect, and in some cases, there may be gaps in paperwork. But this judgment made it clear that the bank or credit card company is not precluded from enforcing a card agreement if it can't provide a copy of the original signed document.
"Provided it supplies a reconstituted version which contains information suggested by the judge, the bank or credit company will be deemed to comply with its obligations."
"The argument that if a court is not provided with the original executed copy of the loan agreement, then the debt is unenforceable is no longer going to fly."
So far as Wright's claim of a 12-day limit for producing the agreement is concerned, Weinberg acknowledges: "This claim is technically correct.
"But if a card supplier says it will provide the reconstituted document in a little longer than 12 days, it will be a brave individual who issues a claim to challenge the validity of their agreement solely on this basis.
"This is because the supplier will not only be able to produce the reconstituted version but also be potentially able to recover legal costs incurred if proceedings were considered to be premature."
Weinberg admits a rise in the number of claims is possible in 2010, partly because of advertising by claims companies in newspapers and daytime TV.
"But this case must not be seen as a potential cash cow," he says. "Courts tend to take a pragmatic line. They don't like people who run up £10,000 of debts and then try to find technicalities which ensure that they avoid having to repay the money."
At The UK Cards Association, a trade association which includes all major credit, debit and charge card issuers in the UK, there is concern at claims management companies which suggest "80% of credit agreements are unenforceable".
On its factsheet, the association says: "Although section 78 of the Consumer Credit Act 1974 obliges card companies to retain copies of credit agreements, this does not mean they need to retain or provide documentation with your signature.
"A 'true copy' need not include the signature box or the signatures."
Backed by the Office of Fair Trading and the Ministry of Justice, the UK Cards Association urges those with heavy card debts to seek free advice, instead of going to claims companies.
Such help is widely available from Citizens Advice Bureaux, National Debtline, the Money Advice Trust, and Consumer Credit Counselling Service which all help consumers who are reluctant to discuss problems direct with card companies.
Peter Harrison, credit cards specialist at Moneysupermarket.com, says: "It is extremely difficult to switch cards at the moment, so you need to be savvy about tackling existing debts. The best approach largely depends on your credit rating and how much you can repay each month."
This legal battle, however, remains finely balanced. Wright believes many banks and credit cards might decide to settle, if only to avoid massive legal costs.
The companies maintain that most of their customers will eventually have to pay up, or face the consequences. While prudent borrowers will try to cut card debts as soon as possible, others hope the claims companies have found a legal escape at the eleventh hour.
:: Information: Cartel Client Review (0845 659 600 and www.cartelclientreview.co.uk). You can also text CLAIM to 88010; Citizens Advice Bureau (08451 264264 and www.citizensadvice.org.uk); National Debtline (0808 808 4000 and www.nationaldebtline.co.uk); Consumer Credit Counselling Service (0800 138 1111 and www.cccs.co.uk); Payplan (0800 716 239 and www.payplan.com).
Poundnotes
:: Many homebuyers moved to Standard Variable Rate (SVR) mortgages when fixes expired and got a wake-up call this week when Skipton BS whacked its SVR rate up from 3.5% to 4.95%.
Out of the blue, Skipton dumped a promise to borrowers that its floating rate would never be more than three percentage points above the Bank base rate, currently 0.5%. The move adds £157 per month to repayments of buyers with a £130,000 interest-only loan.
Michelle Slade at Moneyfacts thinks the move was forced on Skipton because it was aggressive in building a fixed-rate loan book two or three years ago. As these fixes expire, Skipton would have been squeezed if borrowers all grabbed a cheap SVR instead.
Hannah Mercedes-Skenfield at moneysupermarket.com, says: "All eyes are on Skipton but it's not the first to raise its SVR. Smaller societies did the same late last year, although Skipton is one of the more prominent players.
"SVRs across the board have been at record lows for months now, which is obviously becoming untenable for lenders.
"Skipton's move is almost guaranteed to signal SVR rate rises across the board. When one big provider moves, others usually follow.
"Lenders - particularly building societies - face a battle for savers' deposits and they argue the margin on their SVR does not allow them to adequately service borrowers and savers.
"The traditional model was turned on its head in the past year. It used to be the case that when deals expired borrowers automatically moved to a higher SVR, but base rate languishing on 0.5% has meant that it's been cheaper to move to an SVR.
"SVRs were a haven for cash-strapped homeowners over the past year, but homeowners relying on the safety net of a low SVR could find themselves stranded. Borrowers on SVRs should be vigilant in the coming weeks when other lenders could follow suit."
:: Who would have thought it? It seems more than half (55%) of 16-30 year olds have money worries which sometimes cause sleepless nights - because they are worrying about how to support their elderly parents in old age.
This amazing claim might not reflect the thoughts of many students cheerfully quaffing pints in their union bar, but it's in a survey commissioned by Post Office Financial Services.
Entitled 'Finance: A Family Affair', the survey says young people should learn the discipline of putting aside a small sum of money each month.
Psychologist Donna Dawson says: "This is a reflection of the financial climate of the last two years which has affected almost everyone in a negative way."
:: If building societies won't pay a decent return on investments, why not sink some spare cash into fine wine?
The Wine Investment Fund has opened to new subscriptions of at least £10,000, in a five-year offer which will remain open until March 31. The fund aims to generate double digit returns, which sounds much tastier than an ISA, and claims a return of 13.8% per year since the original launch in 2003.
For further details, see www.wineinvestmentfund.com.
:: Personal loan rates are falling, says Tim Moss at moneysupermarket.com, following recent cuts from Nationwide (7.6%), Alliance & Leicester (7.8%) and Halifax (9.9%).
Sainsbury's also looks good value at 7.9%, with Tesco at 8.3%.
On loans of £7,500, the average rate among the top ten is down to 8.35%, the lowest since base rate famously hit 0.5% since last March.
Moss says: "For those needing credit, it might be a good time to have a look at personal loans again. Potential borrowers should be aware they are likely to get a better deal from a bank they already have products with."
:: High five savers
Phone No Rate Account Period Deposit Interest paid
State Bank of India 0207 454 4315 5.25% (F) Five Year Bond £10,000 Yly
Halifax www.halifax.co.uk 5.15% (F) Web Saver Five Years £500 Yly
Investec Bank 0845 366 6333 3.32% High 5 Three Month (P) £25,000 Yly
Cheshire BS 0800 195 1514 3.25% 30 day Postal Saver 30 Days (P) £1,000 Yly
First Save www.firstsave.co.uk 3.25% 90 Day Notice 90 Days £100 Mly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC (Rem) 0800 494999 2.29% discounted for two years 60% £1,499 Yes
First Direct 0845 610 0100 2.58% variable for term 65% £999 Yes
Furness BS 0800 220568 3.49% for three years 75% £499 Yes
Post Office 0800 707 6204 3.49% variable for term 80% £599 Yes
The One account 0845 610 1060 3.75% for term 75% none Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
