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Super Complaints & Interest Rates

So, the consumer group Which? is to make a “super complaint” to The Office of Fair Trading about retailers (mainly low cost airlines) levying high charges for using a debit or credit card to pay for goods, and for often adding this at the last stage of the purchase process which makes it hard for consumers to compare prices.

The crux of the complaint, if we take Ryanair as an example (because I have a love / hate relationship with RYR),  is that they charge a flat £5 per passenger, per flight for paying by any means except a prepaid master card; adding £40 a holiday for a 4 person family and you don’t find out about this until the very last stage in their booking process. Which? suggests that this is high, and the time at which you are aware of it is late.

There Is Cost

Running a small business I am very aware that there is a cost to processing card payments, and this cost has to be borne by the customer somewhere.  Most high street retailers bare this cost out of their normal profit margin, but a lot of low cost retailers itemise separately, arguing they are just passing on a cost extra to the product itself.

Which would be fine, if they weren’t then hiding profit margins on top of it.

We currently process credit cards through HSBC Merchant Services, who charge us £0.38 for a debit card transaction, or 2.8% for credit cards.   Taking an example from Ryanair again, I just checked their website: a return flight for 4 from Birmingham to Alicante is £439, plus £40 “admin fees.”

If I paid by debit card this would add £39.62 to their profit, or £27.08 if I paid by Credit Card (£12.92 being 2.8%).  It doesn’t seem fair on the face of it, and it looks devious that they hide it until the last step.  Ryanair incidentally are not alone in this practice and they also argue the charge is to cover the entire cost of the transaction including their website etc (clutching at straws!).

The Banks Role.

What interests me more is that no-one is questioning the role of the banks in all of this, specifically where a credit card is involved. Why do the bank need 2.8% from the retailer?  Why not a flat fee like Debit Cards?

The banks will claim that they are using this to offset the risk that the retailer fails to provide the goods or services and a reclaim is made by the card holder; but this really must be such a minute fraction it can’t possibly account for the whole 2.8%.

This is at at time when the average interest rate on a credit card has risen to 18.8%, yet the bank base rate is 0.5%.  The banks, through their mouthpiece – The British Bankers Association – have put forward even more tenuous excuses than Ryanair can manage.  The BBC cover it well here.

I would suggest that they are trying to “cream” both ends of the transaction, by making money from the merchant at the point of purchase and then from the card holder at the point of payment.

Real World Example.

My brother, who runs a small independent motorcycle workshop passes on the 2.8% credit card charge to customers, but absorbs the debit card fee.  It’s amazing how many people will instantly swap to a debit card when faced with a credit card surcharge.

He’s not making any money by passing this charge on, and the instant swap by the vast majority of customers says to me that he is being charged for allowing the banks to make money by financing the customers payment. Afterall, they have the money in a debit account; but they’d rather pay by credit.

Seems to me that when Which? refer their super complaint to the OFT they should be asking the OFT to look not only at the price and transparency of these charges, but whether the base charge by the banks is fair too.

Banks: Their Own Worst Enemies.

The Big 4
The Big 4

This is a real tale of just how stupid banks can be.  It involves one of the “Big 4” high street retails banks in the UK and me.

Winding Up.

I had a limited company which I had wound up, it had a loan with ‘BigBank’ – which was paid by means of a standing order in to the company current account with BigBank. The only reason that the current account existed was for the payment of this loan, because BigBank refused to take the money by Direct Debit from anywhere else and wouldn’t allow a standing order direct into the loan.  Stupid.

So, every month £175 went into this account and £175 went out automatically; to the point I had almost forgotten about it except for the money going out of my account every month.  As the company had been dormant for so long I asked my accountants to wind it up – which they did.

Bouncy.

Obviously BigBank has an electronic link to Companies House, and as such froze the account.  So the £175 standing order in to the current account was returned to me.  Yet they still paid the loan, leaving the account £175 overdrawn with no agreement.  Which they charged £30 for.

I immediately rang my bank manager and explained what I thought had happened, and he concurred.  As there was a few months left on the loan I offered to repay it immediately, and the £175 balance on the current account; but no fee’s.   He said he’d get that sorted, and thanked me for calling.

He rang back later that day and said that he couldn’t do it because the system wouldn’t allow him – the account was frozen.  I asked how I could repay the banks £1,100 – “you can’t” was his reply.  What??  I was told I would have to wait for their recoveries team to get in touch, but he would ask them to do that promptly.

Waiting.

Another month went by and they took the £175 again, and added another £30 charge on; before I finally got a flurry of letters from BigBank.  One of the letters was a formal demand for repayment of £11,000 – the full amount of the loan which now only had a little over £1000 left to repay.  Two of the letters referred to my personal guarantee on the loans of a company I had never even heard of.  Total and complete system failure.  Remember I just want to repay what’s owed.

I replied to their letters with a complaint stating that I was very unhappy at having to wait for letters rather than just repay what I didn’t contend was owed, then I received letters demanding repayment of £11,000 in 21 days, and then letters demanding repayment of someone else’s loan.  They just weren’t organised at all.

Settling.

I got a letter back apologising and asking me to call to arrange repayment of £1010 (they’d taken the fees and extra interest off) within 21 days else they would instruct solicitors.  They were now threatening me!! I rang them and explained what had happened, they seemed to think this was normal.  I told them under the circumstances I was prepared to offer them £750 to settle the account.

To my surprise they accepted.  So, instead of having £1100 three months ago they have accepted £750 – they have done themselves out of £350.

No wonder they are state owned – if I let people who wanted to pay, pay only 68% of what they owed me, 90 days after it was due I would be out of business sharpish too.