Finance Wiz

David Cameron has sent a strong warning message to eurozone countries as the situation in Greece becomes less stable and ripples begin to spread through the European banking system.

In a speech, Mr Cameron set out his view on the way eurozone member countries should deal with eurozone crisis. He said that the austerity measures British people were experiencing at the hands of his government were the right way to handle the problem of the deficit. He added that the British economy was “moving in the right direction” despite the double-dip recession.

The prime minister has urged other countries in the single currency zone to either support Greece whole heartedly or plan for the other outcome: its exit from the euro, or the collapse of the currency. Britain is not part of the eurozone, but it is not entirely immune from problems. Inter-bank lending causes a knock-on effect which could drag Britain close to the crisis. If Greece were to default on its loans, several of Europe’s biggest banks could be exposed, with France being particularly at risk.

Vince Cable, the business secretary, took an optimistic view. He stated that Greece was “a very small country” and this would limit the problems Greek debt could cause to the rest of Europe.

In his speech, David Cameron said that eurozone countries were “at a crossroads”. He urged leaders to throw their full weight behind supporting Greece, or make a decision to cut the country loose, a move which would inevitably result in the re-introduction of Greece’s own currency. Such a move would have catastrophic consequences for the nation with mass loan defaults and rapid devaluation of the new currency brought in to replace the euro in Greece.

Financial experts, and the new French president Francois Hollande, have urged the British government to change tack and promote economic growth in the hope that consumer confidence would be boosted. In turn, banks could be more willing to lend to small businesses, creating jobs. Mr Cameron made reference to these calls in his speech, calling them “dangerous voices” and resisting the calls to change course. He also described the overall economic climate as “perilous”, but said he would work with the Treasury to encourage lending.

The Bank of England have warned that mortgage rates are set to increase, and several charities have stated that new homes must be built urgently to bring high rents back down to manageable levels. Critics of the prime minister say that ongoing austerity plans are hitting business hard and damaging growth. Ed Balls, the shadow chancellor, said Mr Cameron was blaming the failings of his own policies on problems elsewhere in Europe.

The euro is currently weakening steadily against the pound, and British holidaymakers are enjoying a boost to their wallets as they escape the poor British weather. Some tourist exchange rates have reached €1.23 to £1 for the first time in five years as markets begin to turn.

The prime minister will now visit a series of summits intended to deal with the growing crisis of debt in Europe.

The Finance Services Authorities (FSA) and the Office of Fair Trading (OFT) have issued a joint warning to financial services companies against coming up with new types of payment protection insurance (PPI) policies.

PPI policies were sold to people who had mortgages, loans or credit cards. These policies were mainly sold by the banks, but some other firms had been selling them too.

The authorities have indicated that they will be monitoring finance firms for any new and potentially damaging PPI policies that may emerge. They have also indicated that they will use their powers to prevent these loan insurance policies from being sold if they are found to be damaging to customers’ interests.

Earlier this year, the banks were defeated in the High Court over the mis-selling of PPI policies.

This has led to them having to set aside over £6 billion in compensation payments to people who they mis-sold the insurance to.

The current clampdown on these types of policies is expected to represents billions of pounds worth of lost income to the banks and other types of finance firms who mis-sold the insurance.

The FSA and the OFT have indicated that they are concerned that the fincancial services companies will simply create some new PPI style policies in an attempt to regain the financial losses that they have sustained. This could potentially mislead more customers into purchasing some policies that they do not need, or insurance that doesn’t protect them.

The PPI scandal and other previous scandals have forced the financial authorities into a tougher stance over any potential wrongdoing. They are now looking to be more proactive in preventing any problems from starting, rather than being left to clean up problems afterwards.

The FSA and OFT are expected to issue some new guidance over these types of policies and have been undergoing a consultation over their proposals.

The consultation has raised several concerns that the authorities have regarding the firms and policies. They are concerned that people are not being identified correctly in the selling of PPI insurance. They also suggest that many policies do not actually meet the customer’s needs and the payouts from a successful claim may also be insufficient. The authorities have also suggested that the policies are too complex and difficult to compare on the market.

A spokesperson for the FSA said: “This is a key time as the market shifts away from PPI and firms begin to develop new products or product features – such as short-term income protection or debt freeze or debt waiver as elements of a credit agreement or mortgage.”

The FSA is also due to be replaced with the Financial Control Authority (FCA) and the current head of the FSA, Lord Turner, has warned that it is vital that the FCA has the powers it needs to be responsible for consumer protection. This would include the ability to ban financial products.

Lord Turner also pointed out that the financial services market has the greatest potential to rip people off and the consequences could carry more significance than other areas of the economy.

Website owners will soon have to change the way some of their forms are laid out as the EU moves to make online shopping more straightforward and safer.

In a move that EU ministers hope will protect consumers, websites will not be allowed to ‘pretick’ any of the check boxes in their online forms if they would result in additional charges. This will prevent customers entering into so-called ‘cost traps’, where they are lured by the promise of something that is free, or are given a price which then increases when pre-ticked boxes are applied for additional fees.

For example, low-cost airlines cannot be sold with a pre-selected add-on amount for travel insurance which the customer must deselect themselves. Services which provide free mobile games or other free digital goods may not charge for anything else via a pre-ticked box. That means that the total price displayed will be the price the consumer ultimately pays.

There are a raft of other changes designed to make the cost of online and distance shopping simpler. Any costs which the customer incurred via a pre-checked box will be refundable by EU law, and credit card fees must be charged at cost only, without making a profit for the retailer.

Customers who contact companies by telephone must only pay ‘basic’ charges for the call.

The new regulations specifically target digital products such as downloads and software.

Companies must be very clear about compatibility issues before the purchase is made as a consumer will not be able to cancel the purchase once the product has actually started to download.

The period in which a customer can cancel a purchase, known as the ‘cooling off’ period, will be extended from 7 days to 14 days throughout the EU. Delivery charges will have to be refunded by the retailer as they are now. This will apply for any sales agreements made outside of a physical store; online sales, doorstep sales and sales made over the telephone.

The changes will not have to be made for another two years to allow retailers time to update their systems.

UK drivers whose income has been squeezed by the credit crisis and the recession are buying less petrol, according to a recent report from the AA.

In the first half of 2011, the amount of petrol consumed by British drivers has fallen. Drivers used 1.7 billion less litres of petrol and diesel than was consumed in the first half of 2008. This represents a 15% reduction in petrol consumption following the credit crunch and recession.

Environmental campaigners have welcomed the news. It is estimated that the reduction in fuel consumption will have saved approximately 4 tonnes of CO2 emissions from exhaust fumes.

This is the equivalent to the amount of CO2 which 0.5% of the total number of broadleaf trees in the UK are able to absorb in their lifetime.

A spokesperson for Friends of the Earth has suggested that the high price of petrol and diesel is forcing consumers to change their travel habits. More people are now cycling, walking and car sharing, which is positive for the environment.

The AA have suggested that the high price of petrol and diesel sales is directly responsible for the drop in the amount consumed. They also point to the recession as having a strong impact on consumption as British people struggle to make ends meet. A recent survey conducted by the AA suggested that 76% of its members were driving less.

For the first six months of 2011, the average cost of petrol has been at a record high of 133.13 pence per litre. In 2008 for the same period, the price was 109 pence per litre.

Edmund King, the president of the AA, said: “There is no downplaying the impact of record fuel prices on families and other people’s lives. A 1.7 billion litre drop in petrol sales says just one thing; too many car owners cannot afford these record prices.”

The AA have also indicated that the reduction in fuel consumption has cost the government approximately £1 billion in fuel duty between the months of January and June for this year alone.

Another spokesperson for the AA suggested that many businesses have faced the dual impact of consumers having to spend extra money on petrol that would otherwise be available to spend in shops, and at the same time, the costs of transporting goods has risen due to high petrol prices. Many businesses have had to reign in their spending on petrol consumption in order to cope.

Tesco have also recently reported that high petrol prices have impacted on what people can buy this year. At the same time, many petrol stations are going out of business as supermarkets aim to attract drivers who are looking for bargain fuel prices.

A spokesperson from the UK Petroleum Industry Association has agreed that there has been a fall in petrol consumption. However, they argue that it it difficult to ascertain whether this is mainly due to the price of petrol or the recession.

Tesco, the biggest supermarket chain in the UK, is cutting its Clubcard rewards scheme in half and removing the amount of buy one get one free offers in stores.

Tesco says it will be focusing on reducing the prices of everyday goods on the shelf from Monday 26th September, 2010. More than 3,000 products have already been discounted, including 14p off certain types of bread and 35p off a kilo of potatoes.

The move is thought to be in response to poor performance as Tesco’s dominance in the UK supermarket price war begins to slip.

The Clubcard scheme is hugely popular and now has more than 15 million members in the UK alone. Members can scan a barcode on a card, keyring or on the screen of their smartphone at checkout to collect reward points on their shopping or fuel purchases. Points can be spent on shopping, dining, days out or holidays. The scheme also runs in other countries such as Poland and Malaysia.

The supermarket has been running a double points promotion as part of its Clubcard offering for some time. The double points offer has always advertised as a temporary increase after it was initially introduced in late 2010.

Tesco are announcing that the scheme will now revert to its previous reward level of giving shoppers one point per pound spent as of 23rd October 2011.

Critics say that Tesco already altered some of the terms of its deals when doubling the points last year, making customers save more points for the same rewards. Withdrawing the double points scheme means customers will now be paying more in points than they did originally, meaning shoppers are worse off than they were under the original terms of the Clubcard scheme. A handful of rewards will be offered at a better rate.

While CEO of Tesco Richard Brasher defended the change, Martin Lewis, the journalist behind the Moneysavingexpert website, said Tesco had “truly slashed the value of its rewards scheme.”

In an unrelated report, a woman from Wrexham has been arrested for using multiple copies of a Moneysavingexpert voucher in Sainsbury’s. The fraudulent vouchers are thought to have been put through a self-service till to avoid detection, totalling £150 in value.

Budget flight operator Ryanair is again causing controversy as it prepares to launch a new pre-paid Mastercard, the Ryanair Cash Passport, in the UK. The card will be rolled out across Europe over the course of 2011.

At present, Ryanair charges a card processing fee of up to £6 per person per flight when a customer books online. This means a family of four would pay almost £45 on top of the cost of their flights, purely in debit or credit card processing fees.

Up until now, customers could use a pre-paid Mastercard from any provider to avoid the fee.

Popular pre-paid cards include the Caxton and FairFX travel money cards. The airline says that as many as 25% of their customers now use pre-paid cards to avoid booking fees.

However, Ryanair is now withdrawing this concession and will be charging the processing fee on all card transactions, including the pre-paid cards customers have been using until now, from 1st November, 2011. The only exception to this new pricing policy will be their own pre-paid Mastercard which will be free to use at the point of sale. There is a £6 fee for purchasing the Ryanair Cash Passport card which is refunded back to the customer in the form of a Ryanair credit voucher.

Consumer organisations are disappointed that Ryanair are seemingly flouting the advice of the OFT on credit card surcharging in the travel industry, and critics of the new pre-paid currency card point out that usage charges of 50p per transaction will be charged for all non-Ryanair transactions from March 2012 onwards. There are several other fees for its use which are not mentioned in the press statement: these include a flat £4 fee for withdrawing cash over the counter, a £2 cash machine withdrawal fee for every withdrawal and a ‘rolling’ fee of £2.50 if the card is not used for six months.

Ryanair is currently in the process of increasing its prices and reported a 50% increase on profits this year compared to 2011.

An estimated £265,000 per day is charged on the purchase of aeroplane tickets. The Which? consumer group lodged a ‘super complaint’ with the government in March this year, indicating that these surcharges are significantly harming consumer interests.

The Which? super complaint was submitted to the Office of Fair Trading (OFT) which is responsible for enforcing consumer protection law and competition law.

The complaint called for the OFT to investigate the excessive surcharges. At the end of June, the OFT proposed a ban on the surcharges, indicating that an amendment to the current Payment Services Regulations, controlled by the Treasury, would be an easy way to implement the change.

However, despite recommendations to put an end to these surcharges, the government have yet to take action, costing an estimated £18 million to the consumer since the end of June.

There are 28 UK based airline companies. Nine of them currently add surcharges when a consumer purchases a ticket when using a debit card or electron card. Two more companies – Lufthansa and Swiss Air – have also announced that they will start doing this at the end of the year.

Where Lufthansa and Swiss have announced a £4.50 surcharge on all card payments, others such as Easyjet charge up to £8. Some companies also add multiple surcharges. For example, Ryanair was found to charge £8 per person, rather than £8 per card payment. This would mean the surcharge applied to the purchase of Ryanair tickets for a family of 4 would amount to £40.

Processing a debit card payment only costs the retailer 20p and processing a credit card payment only costs 2% of the total charge (e.g. £2 charge for every £100).

The airline companies have also been criticised for ‘drip pricing’ when people purchase tickets over the internet. The charges for paying by debit or credit card are often only applied to the ticket costs after the customer had completed several pages of information, making it difficult to ascertain the overall cost of the tickets and then compare them to prices they could get elsewhere.

Other industries also use the practice of adding surcharges when customers pay by card.

Trainline, Eurostar and even some taxi companies are known to add similar surcharges.

So far, only Monarch Airlines have dropped the surcharges. Instead they have replaced them with a flat booking fee of £10, in the hope to make the actual price of their airline tickets clear upfront.

Richard Lloyd from Which? has called for the government to put an end to the unfair practice of card surcharging. Which? are asking people to email Mark Hoban, the financial secretary, to pledge their support for the campaign.

A spokesman for the Treasury confirmed that the government are currently considering the recommendations from the OFT before taking any action.

Mr Lloyd said: “A minor change to the law is all it would take to ban the charges on debit cards that you only find out about at the end of a lengthy online booking process. The government must act so that consumers can easily compare the cost of their flights.”