Monthly Archives October 2010

Junior ISA Saves £500M

Second post of the day and I have to admit that not much work has gone into this one either.

Reason being, if you type ‘junior’ into Google at the moment the top suggestion that drops down is ‘junior isa’.

It’s a bit of a hot topic and there’s plenty of buzz.

What started me wanting to write something was an email I received from the IFS.

I’m working through some exams with them (passed one a week ago today!) so I get regular news and updates and they have released the following:

London, U.K., 28 November, 2010: Financial education charity, the ifs School of Finance, has welcomed the Government’s announcement that a new tax free savings account, dubbed ‘Junior ISAs’, is planned as a successor to the Child Trust Fund. 

 Rod McKee, Head of Financial Capability at the ifs School of Finance, said:

“The creation of Junior ISAs is a great initiative to help encourage parents and grandparents to save for their children’s future. It is particularly pertinent following the findings of the recent Browne Review which indicate young people will need to play a bigger part in funding their own education.”

“Junior ISAs provide an excellent opportunity to save for the increasing financial burdens associated with higher education but this alone is not enough to ensure wide uptake. We need to start with education on why long term saving like this matters, so both parents and young people can be better prepared. At the moment there is no mandatory requirement for financial education in secondary schools, at the very age when it is most beneficial.  We need to give financial education a higher status both in terms of curriculum status and formal evaluation via exams to effect change in money attitudes.” 

The ifs School of Finance was the first provider of GCSE, AS and A level equivalent qualifications in personal finance and is the only provider of A level equivalent qualifications in the area.

End.

They make a good point. Financial education in school is a great idea! It might make children and teenagers a bit more grateful for everything they get and why the answer is sometimes ‘no’.

It will also make them better prepared for the real world and their expectations of work and in a service based economy it can only help to improve the opportunity for employment.

Hopefully the release and subsequent availability of the Junior ISA might go some way to raising awareness and at the same time it’s a way of the Government spending £500M less of taxpayers money per year.

For more, here’s a pretty comprehensive description:

http://www.thisismoney.co.uk/savings-and-banking/article.html?in_article_id=517245&in_page_id=7

MBNA is a Four Letter Word

It’s a subject that makes my blood boil. Credit card rate hikes.

It’s something that has gotten me very close to the point of cancelling the direct debits to one of my card issuers and refusing to accept their extortionate rate rises but that would ultimately do me more harm by tarnishing my credit file so it’s out of the question for the time being.

When a rate that has been steady at about 16.9% gets massively increased to 29.9% without any justification it makes me wonder why I’ve been such a good customer all these years and never missed a payment, exceeded my limit or done anything else that could lead the card issuer to perceive me as a risk.

Customer loyalty rewarded by penalty.

Such an adorable way to run a business.

And a massive business it is too. It’s behind the issue of a large proportion of the cards in circulation that are simply rebranded ‘affinity’ cards.

They may argue that an increase in the cost of borrowing means they have to pass on that increase to their customers. But that’s not true so I don’t buy that for a minute.

It’s profit mongering of the worst kind and as I said before, it makes my blood boil.

In protest I actually wrote to the card issuer to request a copy of the signed credit agreement and they were able to oblige. I wrote in a previous post that I wouldn’t try to wriggle out of the debt but after being penalised for my loyalty I thought I’d try my luck.

Unfortunately, this particular four letter card issuer has historically been very hot on keeping records so it might well be a waste of time trying to contest the original agreement.

Next step was to call them up and complain about the 56% rate increase.

56%!!! How kind of you, you four letter credit card company…

To my amazement they were unable to drop the rate back down to its original level but on one segment of the balance (it’s split between transfers and purchases) the customer service adviser was able to shave a whole 6% off!

6%! Just by complaining!

Are their rates *&@!! arbitrary?

ar·bi·trar·y – /ˈärbiˌtrerē/ – Adjective

1. Based on random choice or personal whim, rather than any reason or system.

Do they have a team of people who wake up one morning and think, “I know, let’s not care about our customers, lets just worry about the shareholders and see how much we can squeeze out of the customers so we can brag about our financial stability in a time of economic turmoil.”

And then they throw some darts at a board pinned with interest rates. Or, they look at a customers existing rate and think, I know, we’ll hike that one up by 56%, ha ha!

It’s shocking to know you can phone up this four letter card company, have a moan about the rates and they’ll drop them by as much as 6%.

They are clearly just charging as much as they can get away with.

It seems at face value to be just about greed because if they wanted to reduce their exposure to risk they could just lower interest rates and increase minimum payments so that debts are paid off quicker.

But if you dig deeper, this four letter card company is owned by Bank of America and we all know how well the American banks are doing.

But lo, the share price of MBNA (oops I let it slip) is almost the same as it was at the height of 2007! So, it’s all about the greed.

http://en.wikipedia.org/wiki/MBNA Mentions something called the “Great MBNA Interest Rate Escalator Trick”

More about that here: http://www.consumeractiongroup.co.uk/forum/showthread.php?114133-The-Great-MBNA-Virgin-Interest-Rate-Escalator-Trick/page7

The above link is to page 7 of  a discussion about this and I’ve copied a portion below that sums it all up very nicely:

An imaginary call to MBNA:

CAGGER: [Switches on Recorder] Hello MBNA, why have you ramped my Interest Rate into Orbit then?

MBNA: Let me explain: we had to do this, you see, because we were a bit short this Month.

CAGGER: That makes two of us. Explain why?

MBNA: We have bills to pay, you know, great big humongous ones. Our phones never stop ringing, beastly Bond Holders keep demanding the Interest we promised them.

CAGGER: I meant explain why this is my problem.

MBNA: Let me explain: in the trade, we call this Securitisation. It’s all a bit complex and you wouldn’t understand.

CAGGER: Try me.

MBNA: OK, let me explain: once we’ve hooked you up for one of our nasty Cards, before you can say Jack Robinson, our beancounters extrapolate what we think we can screw out of you over, say, 5 years, then we add a bit on top to make it look really juicy. The aim is to invent a large enough figure to look really tempting when trying to convince Investors to buy in to your Debt.

CAGGER: Tell me more.

MBNA: Righty ho, here goes: once we’ve dreamt up a nice fat invisible future Debt figure, we flog this off to a little Company we have, one with no Offices or Staff, called in the Trade an SPV.

CAGGER: Wasn’t that a big Truck in Captain Scarlet?

MBNA: Eh? Ah, I see what you are getting at. No, SPV does not stand for Special Pursuit Vehicle! It stands for Special Purpose Vehicle.

CAGGER: So there’s a difference then?

MBNA: Oh yes. Our SPV then slices and dices your projected future Debt up into lots of little chunks called Bonds, and then flogs them off to Investors. The more little Bonds there are, the harder it is for any of the Bond Holders to give us a really hard time you see. Each one only gets a little piece of your ass, not the whole thing.

CAGGER: But what do they get then? I don’t suppose these Bond Holders buy these invisble Debt Bonds just for fun.

MBNA: No, of course not. We agree to pay them Interest. Now, here’s the really clever bit, we Pay them less than you Pay us! But, in return for this red hot deal, collectively, they give us a great big wedge of Cash up front…and you haven’t even spent anything yet! We plop that into a high interest account and use that to cover anything that you do happen to squander your Credit Limit on. At that stage, we haven’t had to use a penny of our own Wonga.

CAGGER: Amazing, and you thought of that all by yourselves?

MBNA: Sort of. It’s Industry Standard actually. Every banker we know is banging away at this. Anyway, it gets better. We fix the Interest Rate we Pay them, but we add a little gotcha into their Bond Terms to say anything we can get above that is all ours to keep. Every last bit! We call it an Interest Rate Strip…or something like that. Whatever we call it, it confuses the hell out of the Bond Holders anyway.

CAGGER: It certainly confuses me. So, let me get this straight, I’m not really paying you, I’m paying the Bond Holders?

MBNA: Sort of. This is where it gets even cleverer. We just collect the Payments from you, having sold your Debt to our SPV. Your money shoots through our accounts faster than grit through a Duck. All we need do is grab our agreed cut as it shoots past, plus anything else we can engineer on top.

CAGGER: On top? What…like Charges, such as over-limit fees, late fees, things like that?

MBNA: Yes, you’ve got it. Easy when you can see how it’s done. We start off paying the Bond Holders Interest and, to be honest, it’s hardly worth getting out of bed for at that point. It’s hard work at that stage, as we can barely cover the HP payments on the Bentleys with that paltry margin. So, we pump up the bit we can make on top. Whoosh, up goes your Interest Rates and, when you struggle and fall behind as we expect, we can then add Charges. Then use those charges as an excuse to pump up your Rates still more. It’s really very, very clever. Nothing up front, and loads of money comes straight at us. It works like clockwork once we get you over 20% Interest!

CAGGER: So what happens if I struggle to Pay?

MBNA: Oh, easy, we just Ramp Up your Interest Rates even more, and then whack on a load more Charges. We know you won’t last long at that point, so we may as well shaft you for all we can get, while we can get it. Be a shame not to.

CAGGER: But, if I stop paying, won’t the Bond Holders get a bit cross?

MBNA: Quite possibly. But we don’t really care.

CAGGER: Why not?

MBNA: Because that’s their problem. When we sold them the Bonds, er, I mean when our SPV sold them the Bonds, we made, er, I mean our SPV made, a big fuss about a thing called Bankruptcy Remote.

CAGGER: What does that mean when it’s at home?

MBNA: It’s really neat. The Bond Holders think they are safe, because we, er, I mean our SPV, tells them that the deal is poop proof both ways. If we go bust, then our Creditors can’t go chasing them for money. But, what it really means is the idiot Bond Holders can’t go chasing us for money when you go Bust! Ha, ha! Cracking stuff is it not!

CAGGER: Hold on. I thought you owned my Debt? Didn’t I see something that mentioned The Consumer Credit Act 1974, perhaps suggesting this thing is Regulated in some way?

MBNA: We don’t worry about that! We’re a Telephone Bank and governed by American Law.

CAGGER: Really? But don’t you need to own a Debt to take me to Court in the UK?

MBNA: I can see what you are getting at, but we’ve thought of that already. A bloke in our Legal Department met a chap in the pub who said that we can use an old Act from 1925, something to do with property. Anyway, that allows us to split your Debt into two bits.

CAGGER: Hold on, just how many Debts do I have?

MBNA: Just the one, but we pretend to split it into two bits, one called Equitable Rights, and another called Legal Rights. We sell the whole lot to the SPV, but pretend that we only sell the Equitable Rights to the Bond Holders, and pretend to keep the Legal Rights in case we need to grab your Home in Court when you can’t pay all of the Debt we have engineered.

CAGGER: Don’t the Bond Holders see through that one?

MBNA: Nope. We’ve thought of that too! We do sell them the whole of your Debt.

CAGGER: The whole of my future Debt you mean?

MBNA: Whatever. We sell it all to them anyway, lock stock and barrel, otherwise the Bond Holders would never Buy. So, our SPV knocks up some secret papers that allows them to claim full ownership of your Debt, no matter what happens to us. They just need to pull this out of their bottom drawer, and your Debt is officially all theirs, no need for us to do anything! They are not that stupid! They won’t part with a cent unless they are Buying the whole shebang.

CAGGER: Not Stupid? What, unlike me you mean. So, bearing in mind how stupid I am, please explain how you pretend the legal side of my Debt is still yours, when it’s not really?

MBNA: Dead easy! We use that 1925 Law of Property Act thing I mentioned, which says, I think, that provided we don’t tell you we’ve Sold your Debt, we get to pretend we have the Right to haul your ass into Court!

CAGGER: So, if you do tell me, as you have just done, that my Debt no longer belongs to you, then this is the actual confirmation of sale. In the Trade, I think you call that Absolute Assignment.

MBNA: Yes, you’ve got it in one! Once I tell you we’ve sold your Debt, we are stuffed, as we lose the Right to take Court Action against you!

CAGGER: Excellent. Next question: does the SPV or Bond Holder have a Consumer Credit Licence by any chance.

MBNA: No, of course not! Why do you ask?

CAGGER: Just idle curiosity. But, many thanks for confirming you no longer own the Debt.

MBNA: Oh…cock, did I say that!

CAGGER: You certainly did. Have a nice day [clunk, ends Call, switches off Recorder].

I am so looking forward to clearing the debt and disassociating myself. Or I might leave a small balance, say, £3 and cost them more in admin fees that they make. That’ll teach them!

Mortgage News – Santander, the Hydra Loses a Head

I haven’t been paying too much attention to the mortgage market lately because frankly it’s a little slow and somewhat tainted by stigma (having joined the industry in late 2007) but it’s been almost impossible to miss the presence of Santander. Until recently they had been dominating the results tables of mortgage research with leading rates and a wide variety of choice.

Be it in the guise of Abbey or Alliance & Leicester there is no denying Santander’s aggressive stance in the mortgage arena but recently other lenders have started to pepper the top spots.

Surprisingly Woolwich seem to be pricing themselves back in the market with some pretty good tracker rates and TMW (part of Nationwide) is offering one of the lowest rates around at 2.14% which is only slightly higher than the leading offer available from C&G at 1.99% (with a 2.5% arrangement fee – on a £200,000 mortgage that’s a £5000 fee!) and a tiny bit better than A&L’s headline tracker of 2.19%.

Headline fixed rates are also now mouth-wateringly tempting and as low as 2.49% for 2 years from The Mortgage Works and 2.54% from A&L.

For a low fee, HSBC have a 2.99% fixed offer with a token £99 arrangement fee.

But in 3 days time the mortgage research tables will be missing a familiar name as Alliance & Leicester closes it’s doors to new business and gets absorbed by Abbey/Santander.

Until the 15th of October Alliance & Leicester will still offer some great rates but after then the changing tide will ebb away and another household name will be gone from the UK mortgage marketplace.

A&L’s other financial offerings have already been rebranded as Santander and the mortgage division is the last to go.

A&L became a familiar UK brand in 1985 when the Alliance Building Society merged with Leicester Building Society but its origins can be dated back to 1852 with the formation of the Leicester Permanent Benefit Society.

Still, we’d get bored if everything stayed the same!

Have you been sitting on a Standard Variable Rate above 3%? Now’s the time to look at switching because that SVR is unlikely to get any lower.