For the first time, the full extent to which loan and credit card companies are boosting profits through dubious sales practices and unjustifiably high charges is revealed by Which
The consumer watchdog has calculated that credit card companies make a staggering £400 million a year charging customers who pay bills late or exceed credit limits. This doesn't affect just a few absent-minded people; a staggering 1 in 4 people were charged at least once in the last year for paying late or going over their limit.* Most card companies charge £20 to £25 for these slip ups - above the cost of dealing with late or missed payments, as letters are generated automatically and penalty charges are simply added on to the next bill. Which? has also estimated that loan companies rake in at least £1 billion a year from selling pricy payment protection insurance (PPI) with personal loans. Designed to cover loan or credit card payments if the borrower is unable to work, Which?'s investigation** also shows - once again - that loan companies aren't selling PPI properly. The insurance offers limited cover and, when mis-sold, could be completely useless. The report catalogues shady sales practices used by the credit industry to win customers and wring all they can out of them. Favourite tricks of the trade include: Risk-based pricing - Some credit and loan companies advertise interest rates that not everyone will get. People don't know what rate they'll be offered until they've applied and been credit searched; if they decide the rate is too high, the search affects their credit rating and ability to get credit elsewhere. Marketing - The way companies market their products encourages people to borrow more than they can afford. Bad practices - Which?'s member survey*** has found that the higher somebody's debt is, the more likely it is they'll be targeted with credit card cheques and limit increases, to allow them to borrow more and more. Responsible lending - Lenders use credit reference agencies (CRAs) to check they're not lending to people who can't afford to repay the loan. But not all lenders supply the same information, so not all debts show up. So while some people can borrow beyond their means, others with nothing on file, good or bad, can find it difficult to get credit. Without sharing full data, it's simply not possible for lenders to make responsible lending decisions. Interest calculation - Companies calculate interest in different ways, making it impossible to compare cards. The differences hinge on when cards start and stop charging interest, but most people Which? talked to didn't understand how it worked****. This can only change if interest calculation is standardised. Malcolm Coles, editor, Which?, says: "The credit industry has an alarming number of tricks up its sleeve to wring every last penny it can out of its customers. Lenders seem to have no qualms about persuading people to take on more debt than they can afford and they'll carry on doing it as long as they can get away with it. "Although last year's review of the Consumer Credit Act tackled some serious issues, we were very disappointed it didn't cover things like interest calculation methods and data sharing. We'll continue to keep up the pressure on the industry to get its house in order."
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