Saturday, 8 November 2008

Credit cards can save you from collapsing builders

Published Date: 09 November 2008
ABIG surge in the number of businesses and small traders that will go bankrupt this year should set warning lights flashing for consumers.

According to figures published on Friday, the numbers hit by personal insolvency have increased from 1,545 to 4,055. The picture is even worse for companies hit by financial problems: the numbers entering either into receivership or administration ADVERTISEMENTare up four-fold.

This should concern anyone planning a new kitchen, major building works or ordering furniture. Losing the price of a new plasma television would be extremely annoying, but being left without a roof on your house because your builder has gone bust mid-contract would be a disaster.

Self-defence shopping must be a priority. So how can you protect yourself? The most important precaution is to always pay by credit card where possible. Under section 75 of the Consumer Credit Act, if you fail to receive goods or services you have ordered and paid for, your bank must help you pursue your claim, and if unsuccessful compensate you for any loss, provided the item cost between £100 and £30,000.

However, where you have paid a deposit of less than £100 you can still claim redress from the card issuer, provided the total cost was for more than £100. So if you put £50 down on new curtains being run up for £500 by the local seamstress, who then goes bust, you can claim your £50 back.

But bear in mind that you must have made the purchase for your own use. If you pay for four theatre tickets at £30 each for an evening out with friends, and the show and company folds before the performance, the issuer is likely to resist reimbursement on the grounds that you could not possibly have sat in four seats simultaneously yourself. But your credit card provider will only come to your assistance if you have a contract with the retailer or other supplier. Emma Parker of the Financial Ombudsman Service explains: “If you are employing a plumber or electrician, then make sure you get something in writing. We have seen cases where the banks have challenged reimbursement because there was no contract between the customer and the tradesman, and the cardholder had nothing in writing. Even if it is just on a scrap of paper, get them to write something down.”

If you don’t have a credit card, or the retailer or tradesman won’t accept it, Visa debit cards offer a similar protection, provided you make a claim to your bank within 120 days of realising a deal has gone sour.

In fact, the Visa rules are more generous than the consumer credit law demands, in that there is no limit to compensation; a munificence which also extends to Visa credit cards.

Most shops will accept either credit or debit cards, so if you want to order something from one which does not, you need to think very carefully about the likelihood that you will ever receive the item you wish to purchase.

However, many tradesmen may not accept credit or Visa debit cards, in which case extreme care is needed.

Espe Fuentes, a solicitor at consumer group Which?, suggests still paying for anything you can by credit card and on no account parting with money in advance. She argues: “Rather than give your plumber the money to buy the boiler for you, buy it yourself on credit card.”

The difficulty with this approach is that tradesmen can often get discounts of around 20% compared with what the ordinary consumer pays. Fuentes says: “Then you have to weigh up what the discount is worth to you, compared with the risk of parting with your money.”

Insolvency practitioner Beverley Budsworth recommends being very wary of anyone putting you under pressure to pay before work is completed and advocates trusting your instincts to spot danger.

She says: “Anyone who puts you under pressure to put money upfront should set off warning bells. Why are they so desperate for the cash?”

She also suggests using firms which have a long track record: “Firms that have been established for many years will have ridden out booms and busts in the past. Newer firms may not have the experience or resources to ride out difficulties.”

Nick Wood, recovery practitioner at accountants Grant Thornton, warns: “Don’t pay a penny upfront if you can avoid it. Pay only on satisfactory completion of the work.”

If you are embarking on a major building project, he insists you must be ruthless in negotiating staged payments.

“Draw up a schedule of the work, and schedule in payments, but only after each stage has been completed to your satisfaction.”

He also suggests checking out firms on the Companies House register ( This holds reports and accounts filed by limited companies, and can be checked for adverse information. However, this may be of only limited help, as the most up to date information may not yet be filed, although it should flag up serious problems.

Unfortunately, although companies can use credit reference agencies to check us out, consumers cannot use the same system to assess a business they wish to deal with. However, the leading credit reference agency Experian said it was looking into this possible extension of its services in the current climate.

Finally, if you are having new windows fitted or major building work done, it is possible to take out insurance to cover work in progress or any guarantees subsequently issued. For example, Warranty Services ( would charge £30 to protect you against a roofer going bust while carrying out repairs costing £5,000.

Warranty Services operations director Gary McGivern says: “The biggest seller involves double-glazing work where a 10-year guarantee is issued following satisfactory installation. If something goes wrong with the windows six years later, and the firm no longer exists, we will pick up the problem.”

However, it will only pay up if the claim meets its terms, so it is important to read the small print. For example, if a builder simply retires at state pension age, that may not be covered.

0% balance transfer deals begin to fade

Capital One has withdrawn its best-buy balance transfer credit card from the market, emphasising an on-going downward spiral in one of the industry's most popular sectors.

Although borrowers can turn to equally attractive offers from Barclaycard, First Direct and Virgin, Savvy credit card users hoping to transfer their debt from one card to another will find it increasingly difficult to do so in future.
Over the past year the overall number of 0% balance transfer deals has been cut back with 75% of firms now offering deals compared with 82% in October 2007. There were 103 such cards on the market a year ago, but only 87 remain today.

The introductory period of these cards has also been reduced: across the market the average introductory period has been reduced from 10.1 months to 9.5, according to price comparison website

In the past, many credit card users or so-called 'rate tarts' have used these extended 0% periods to transfer their existing debts at little cost. But with the number and length of these offers reduced, this is likely to become increasingly difficult.

It will also cut back on the process known as 'stoozing'. This is a way of making money by borrowing large amounts of cash on 0% credit card deals and then deposited the funds in a high-interest savings account. As the borrowed funds do not attract interest and if you do not spend any of it before the end of the 0% deal, you get to keep the accumulated interest for yourself.

If a customer was able to find consecutive 0% deals, they could avoid interest and earn money from stoozing indefinitely. However this is becoming increasingly difficult also as card providers tighten their lending criteria.

Sean Gardner, director of, said: 'These figures should send a clear message to borrowers that the credit card merry-go-round is grinding to a halt. In the coming months, it's going to become increasingly difficult to refinance your debt at 0% interest.

'This trend away from extended balance transfer periods underlies a shift in the industry which is increasingly cautious about the people it lends to and is far more interested in the profitability of its customers. A year ago there were dozens of cards with overall APRs of little more than 10%, but today the most competitive cards offer rates of 16% or more.'

The situation of borrowers is not helped by the fact that the rate on authorised overdrafts is increasing. The interest charges on overdrafts has increased by an average of 1.35% since June this year, according to Mr Gardner. The average authorised overdraft now charges 13.06% compared with 11.71% in June despite the Bank of England cutting rates by 2% over that time period.

The balance transfer offer from Capital One, which was near the top of the best-buy tables earlier this year, offered 0% on balances until December 1, 2009.

Virgin Money currently offers the longest 0% balance transfer deal at 16 months, followed by the 0% offer until February 1, 2009 from Egg. Two other great offers come from Barclaycard OnePulse and Tesco Personal Finance Bonus with transfer periods of 14 months.

Interest rates are slashed in Europe

By Chris Giles in London, Ralph Atkins in Frankfurt and,Krishna Guha in Washington

Published: November 7 2008 02:00 | Last updated: November 7 2008 02:00

Interest rates were slashed across Europe yesterday as the continent's central bankers decided the outlook for their economies had taken a decisive turn for the worse.

The Bank of England cut rates by 1.5 percentage points to 3 per cent, bringing the official rate to its lowest level in 53 years. The cut was three times bigger than any seen since the central bank's monetary policy committee was established in 1997.

The European Central Bank cut official borrowing costs by half a percentage point to 3.25 per cent and Jean-Claude Trichet, ECB president, said he would not "exclude" a further cut in December.

The Czech central bank also unveiled a much larger than expected three-quarter percentage point cut, while the Swiss National Bank said it was lowering interest rates.

Equity markets slumped amid fears that global weakness would hit corporate profits. The S&P 500 index fell 5.03 per cent, after losing 5.27 per cent on Wednesday. London's FTSE 100 index closed 5.7 per cent lower, while German and French equities both fell more than 6 per cent.

The International Monetary Fund published an emergency update of its forecasts, predicting the rich world's economies would shrink by 0.3 per cent next year, the first contraction since the second world war. Last month it projected 0.5 per cent growth.

The IMF recommended that the US, Europe and China raise public spending and cut taxes.

The number of Americans filing new claims for unemployment benefits remained more than 50 per cent higher than before the financial crisis hit in 2007 as the insured unemployment rate climbed to its highest level since February 1983.

Kevin Warsh, a Federal Reserve governor, said there were "notable signs of improvement" in credit markets, but added that financial markets "remain strained" and would remain so while financial sector business models were still in "substantial flux."

In what may be a signal that the flurry of policy interventions is drawing to a close, he said "a dose of patience" may be required. "New prescriptions, however well-intentioned, can prove unsettling to a patient who is searching to find his footing."

The Bank of England said its dramatic move was a response to tightening credit conditions; evidence of a "severe contraction" in the economy over coming months; and a dramatic extinction of inflationary pressure.

The size of the cut in UK interest rates appeared to have taken the ECB by surprise, but Mr Trichet played down differences in approach.

Euro, pound edge higher against dollar

FRANKFURT, Germany (AP) — The euro and the pound both edged higher against the dollar in trading Friday, a day after the Bank of England and European Central Bank cut interest rates for the second time in less than a month.

The ECB cut its key rate by half a percentage point to 3.25 percent shortly after the Bank of England lowered its key interest rate by a startling 1.5 percentage points to 3 percent.

In morning European trading, the 15-nation euro bought $1.2830, up from $1.2735 late Thursday in New York. The British pound slipped to $1.5784 from $1.5753. That reversed Thursday's declines in the wake of the rate cuts.

Lower interest rates can help prompt economic activity, but also typically drive investors away from a currency as they seek higher returns elsewhere.

In other trading Friday, the dollar dropped to 97.45 Japanese yen from 97.82 yen.

Euro Rises To Near Record High Against Pound

(RTTNews) - Extending Asian session's uptrend, the euro surged to near a record high against the pound during early European deals on Friday. Meanwhile, the euro reversed its early Asian session's loss against other major currencies. The euro thus recovered from a 1-week low against the yen and a 3-day low against the dollar and the franc.

The German and the French trade balance reports, which were released today likely influenced the European currency.

Germany's foreign trade balance showed a surplus of EUR15.0 billion in September, up from EUR10.6 billion surplus recorded in August, the Federal Statistical Office said today. That was higher than the expected surplus of EUR13.5 billion. In September 2007, the surplus amounted to EUR18.2 billion.

The French Customs announced that the country's trade deficit widened to EUR 6.25 billion in September. Economists were looking for a deficit of EUR 5 billion. In August, France had recorded a deficit of EUR 5.4 billion. Exports totaled EUR 34.29 billion in September, while imports were worth EUR 40.54 billion.

Yesterday, the European Central Bank slashed its key interest by 50 basis points to support the 15-nation economy, which is on the verge of a recession. The Governing Council lowered the key-lending rate, which is the minimum bid rate on the main refinancing operations, by 50 basis points to 3.25%, as expected. The interest rate on the marginal lending facility was reduced to 3.75% and the interest rate on the deposit facility was cut to 2.75%. Economists foresee further rate cuts by mid 2009.

Following the rate cut announcement, the European Central Bank President Jean-Claude Trichet struck an uncharacteristically dovish pose in Frankfurt, suggesting that dropping commodity prices and diminishing demand will lead to price stability for the Euro area in 2009.

"The outlook for price stability has improved further," stated Trichet. "Price, costs, and wage pressures in Euro area should continue to moderate."

Tesco boss Sir Terry Leahy 'pressured Bank to cut interest rates'

By Matthew Moore
Last Updated: 11:18AM GMT 08 Nov 2008

Sir Terry Leahy held private meetings with members of the Monetary Police Committee including Mervyn King, the Bank's governor, to urge them to take decisive action to boost consumer confidence.

Britain's retailers fear that crucial pre-Christmas trading will suffer as Britons tighten their wallets amid predictions of an imminent recession.

Sir Terry Leahy, who sits on Gordon Brown's committee of business leaders, is one of the most influential chief executives in Britain.

The Guardian newspaper reported that he discussed the country's economic plight at a breakfast meeting with Mr King on Threadneedle Street in the City, and also met MPC economist David Blanchflower who had been one of strongest advocates for steep rate cuts.

Tesco is the country's biggest supermarket, taking £1 of every £8 spent on the high street. It announced six-month profits of £1.44bn a month ago, up 11pc, but is facing stiff competition from cut-price retailers like Lidl and Aldo as the financial crisis hits consumers' wallets.

In September Sir Terry publicly called for lending rates to come down, saying: "Inflation has passed its peak ... and that will leave room for interest rate cuts which I think will be welcomed."

A Tesco spokesman refused to confirm or deny the reports of Sir Terry's meetings, but Lucy Neville-Rolfe, the supermarket's director of legal affairs, said: "The MPC did a very brave thing." She added: "Our concern is to make sure the banks pass the rate cut on."

Yesterday Halifax, Nationwide, Royal Bank of Scotland and NatWest, and Scottish Widows all said they would be reducing their standard variable rate by 1.5 per cent, in line with the Bank's shock reduction on Wednesday, which slashed the base rate to a 53 year low of 3 per cent.

HBOS board rejects bank duo's bid

An attempted boardroom takeover of HBOS by two former bank chief executives has been unanimously rejected by HBOS's board, its chairman has said.

Sir Peter Burt, formerly of the Bank of Scotland, and Sir George Mathewson, ex-head of the Royal Bank of Scotland, say they should be appointed to lead HBOS.

They want the bank to stay independent and intend to canvas shareholders.

But HBOS said their plan offered no value to its shareholders and a deal with Lloyds TSB was on track.

In a letter to the two men, HBOS chairman Lord Stevenson of Coddenham said his board saw "no basis for future discussion".

He was responding to an earlier letter in which Sir Peter and Sir George had called for his immediate resignation, as well as that of HBOS chief executive, Andy Hornby.

It's a fantastic deal for Lloyds but it's not a good deal for anybody else

Sir Peter Burt, former chief executive of the Bank of Scotland

They said they would take over temporarily as chairman and chief executive, come up with a plan to keep the bank independent and end the proposed £12bn Lloyds TSB takeover.

The letter-writers said by keeping HBOS independent they could protect jobs and bring benefits to customers and shareholders.

A rebuff from the HBOS's boardroom followed, yet Sir Peter and Sir George say they still intend to call an extraordinary general meeting for HBOS shareholders to find out their views.

They say HBOS no longer needs to be rescued by Lloyds TSB, because the government and Bank of England have offered vital funds.

Sir Peter, who is credited with creating HBOS, said Lloyds TSB was no safe haven for HBOS.

It's impossible to ignore the very formidable obstacles faced by Sir Peter Burt and Sir George Mathewson

BBC Business Editor Robert Peston

Read Robert Peston's blog
Text of the Burt-Mathewson letter
HBOS statement in full

"The black horse has got two broken legs," he said, referring to the company's symbol. "It's a fantastic deal for Lloyds but it's not a good deal for anybody else."

He added: "Why would the government want to push through a merger which the Office of Fair Trading has said is against the public interest; jobs will be lost north and south of the border; it is anti-competitive; it is not good for staff; it is not good for customers; and it is not good for shareholders?"

But HBOS insisted a "well-developed deal" with Lloyds TSB was on track and provided certainty to its shareholders and real financial benefits.

Deal 'on course'

Shane O'Riordain, head of communications at HBOS, said the plan from Sir Peter and Sir George did not offer shareholders anything - no cash, no value nor any certainty.

"All they are simply saying is they would come in and run the company instead," he added.

"Together with Lloyds TSB we will be a stronger group, a group in a better position to access funding and, after all, funding is the lifeblood of any bank."

Members of the public give their views
The Treasury said the merger with Lloyds TSB was still on course, but if it did not go ahead, the government would have to look again at any taxpayer support.

The government has already spent £17bn of taxpayers' money bailing out HBOS.

BBC business editor Robert Peston said he sensed the Treasury was not keen on putting more taxpayers' money into HBOS.

He said the chancellor, Alistair Darling, had already made it clear he was not enthusiastic about HBOS operating as a stand-alone business and Gordon Brown was not likely to abandon his backing for the Lloyds takeover.

First Minister Alex Salmond said of Sir Peter and Sir George: "They are the two outstanding figures in the Scottish financial sector over the last generation, and therefore their views command great respect."

The Scottish National Party has been highly critical of the takeover. There are 17,000 jobs at stake in Scotland and it has become a highly-charged political issue.

Mr Salmond emphasised all propositions on the future of HBOS should be considered in terms of the best interests of Scottish jobs, business, personal customers and the wider Scottish economy.
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