I’m a great fan of governments and companies making their money from voluntary, rather than compulsory, charges. The lottery is an excellent example. Another, outside of the government sphere, is personal banking. There are generally no charges for holding a UK current account or credit card, and you can usually get the kind of quality deal that means the bank is paying you for your custom (the fact that it’s free almost makes up for the fact that the industry has no concept of customer service).
But where do the banks make their money, then? Simple: they publish a simple set of rules that people who have accounts with them should stick to, and then they apply penalty charges to people who fail to stick to the rules. For example, they say “if you have a credit card, then you should make at least the minimum payment every month – if you don’t, then you’ll be charged a £25 penalty”. People who don’t like wasting money can sign direct debit forms to ensure they never have to pay the penalty; people who do like wasting money can pay the penalty. All voluntary. Nice.
The Office of Fair Trading disagrees. It thinks that it’s unfair to expect people to follow simple rules, and therefore that financial services providers shouldn’t be allowed to charge penalties greater than the actual cost of sorting out people’s problems. It effectively changes the customer/institution relationship from one based on rules to one based on charity – applied outside of the financial services industry, it would suggest that people who miss budget airline flights ought to be allowed on the next plane for free (as long as there’s a seat, and subject to a tenner’s admin fee).
As a consumer, this doesn’t seem like such a terrible prospect. However, nobody is seriously proposing that it should be applied universally – rather, the OFT seems to making banks a special and separate case from other contractual business relationships. Which is a bit odd.
As one who has subsidised you often enough, I have to agree with you. The trick is to time your payment to maximise the time the money stays in your own account without leaving it so long as to incur charges. Accidents will happen.
Surely you have to take account of the fact that, by and large, the banks are a bunch of bastards? For a start, what "costs" do they incur by late payment? You have to pay interest anyway, so they get back the money they might otherwise gain through investing the money you should have paid. It's not like they have to employ people to chase up late payments: it's not like my bank actually even tells me I've missed a payment date.
Yes, yes, I know that the banks set rules, and we should follow them. However, I don't get too worried by the government basically saying that some rules are so stupid, and so exploitative, that they should be moderated a bit.
Finally, my personal experience of this was when I have once missed a payment. My own fault, hands up. However, on my statment was a refund to the credit card of much, much more than the minimum payment. After complaining to the bank as to why this didn't count towards my minimum payment, they offered up the excuse that the "transaction date" of the refund was for the previous month: apparently the fact that a computer error had left said refund in digital limbo for weeks on end didn't matter. They did refund the late payment fee though, but it didn't exactly improve my rather dim view of them…
I can't say I agree with you on this one, John. A few of years ago I attempted to take out a small loan (5 grand) from a well-known highstreet bank. I was told that 5K was not possible, but they could offer me loans starting at 20K. The other option was to use my credit card at 6 times the interest rate. And there was nothing voluntary about those interest payments.
Banks, like every other corporation, use a variety of tricks to part their customers from their hard-earned money. I accept completely that there are those who sail through life without ever incurring debt, or who never get ill and fall behind on payments, or who never fall foul of any of those tricks used by the large financial institutions. And for those people, bank charges are completely voluntary.
For the other 95% of us, however, they can turn out to be problematic.
First things first, welcome back John, even if you have moved to the World's Worst City. Loving the new look.
Now, where to begin? You will be familiar with the notion that apparently voluntary expenditure is not as fair as it may appear. Your example of the lottery represents a massive transfer of money from the poorest sections of the population to sectors which ought properly to be funded through general, progressive, taxation. So, although "voluntary", such schemes in fact represent a subsidy of the rich by the poor.
Similarly, the history of retail banking over the past 25 years – and especially more recently – shows a disproportionate burden being pushed onto those least able to afford it. Many economically inactive citizens have been forced into having bank accounts by changes in benefit rules, while those on low incomes may be unable to make payments as regularly as others for many reasons other than ineptitude. Surviving on a low income means that even a minor expense – such as a few pounds on a rising utility bill – can upset finances which are far more finely, and ingeniously – balanced than I suspect your or mine are.
Some fair points above.
There's a difference, however, between accepting that banks are inept and shady (which is true) and suggesting that the best way to make up for this fact is to ban them from penalising customers who break the rules.
The practice Jim outlines is the kind of thing that a government that cared about the welfare of poor consumers ought to be banning. Penalising people for not making regular payments, when setting up regular payments makes life easy for banks and themselves, is not.
And I don't think someone who actually can't afford to pay the minimum payment (is that 2.5% of the bill? It's not a large proportion, anyway) should have a credit card with the credit limit that they do. I think that anyone who finds him/herself in that position seriously needs financial help.
I seriously doubt, however, that most of the people who miss their minimum payments do so for this reason (not least because if that were the case, then the banking system would be in the verge of collapse). Rather, it's people who can't be arsed to pay *despite* the penalty. And I have little problem profiting from their lack of arsedness.
Speaking as one of the inept, I can only pass on the message "fuck off, we vote (when we can get it together) and there are more of us".
"Simple: they publish a simple set of rules that people who have accounts with them should stick to, and then they apply penalty charges to people who fail to stick to the rules."
in addition to this, I think, many people simply don't bother to read their contracts, where banks mention a number of "hidden" conditions. That's where customers face really high fines and charges!