Tuesday, January 20, 2009

Layaway, the cure for our plastic pain?

Yesterday, January 19th was officially the most depressing day of the year, when it seems the bad weather, long forgotten new year resolutions and the post Christmas bills all catch up with us. To be honest the bill I hate most is my credit card bill. January seems so far away when you are shopping before Christmas. Yes I try to reduce the cost of it, but sometimes I need it to tide me over or I have to withdraw cash where these sneaky charges kick in....it always galls me even if I have to pay a few euro in charges and fees. Two years ago I was involved in a NYCI campaign to address some of the worst anti-consumer features of credit cards. Last year I got a commitment from the Financial Regulator that some of these issues would be dealt with in the review of the Financial Regulator's Consumer Protection Code in 2009. Given all that has happened in the financial sector in recent days, months and weeks, a revolution in regulation is required, not a review.

Well back to my bill, I got a shock when it arrived as I was charged a €7.50 over limit fee. How could this be, I don't remember having to pay this before. Anyhow I called my bank Permanent TSB and asked where did this come from. I was informed that this new fee was announced in a press release in October (couldn't find that) and of course if I had read the new terms and conditions line by line, would have seen details on page 6, how silly of me!

Bank charges and fees have been a major issue in the UK. Some of the banks there charge unfair and exorbitant fees and the issue has been through the courts where the banks have been taken to task and many consumers are getting redress. The Office for Fair Trading there has investigated these charges known as default charges and called for reductions. The only reason we have been spared such an onslaught is that many of the fees and charges (not credit card fees it would appear) are governed by Section 149 of the Consumer Credit Act which I wrote about previously Anyhow my bank told me that the fee was to cover their costs because it cost them moeny when I went over the limit, which of course is balderdash.

Firstly I told them a limit is a limit, if I exceed my credit card limit, then the payment should be refused. I am certainly not one to be embarrassed if my credit card is refused. Secondly it doesn't cost the bank anything, in fact they are charging me interest on the larger amount, so in fact they are having their cake and eating it. Getting a nice fee of €7.50 plus interest on the bigger balance. A few years ago banks were actively encouraging people to increase their limits, sending them letters and calling them. This was banned by the regulator, now they have found a new way around this. Charge an over limit fee and madden us all into increasing our limit to avoid it.

Against the background of my rage at this fee and credit cards in general, I came across this interesting article in the Economist on layaway. Its referred to as a lay-by in the UK, Australia and New Zealand. Basically a return to old and perhaps more sensible times when if you wanted to buy a suite of furniture, you paid for it in instalments and only when you had fully paid for it you collected it. As this blogger recounts I do remember something like this from childhood, but until recent times seemed quite quaint. So instead of walking in, flashing the plastic and a buy now pay later mentality, you are forced to budget so that you can afford your weekly or monthly payments. Sounds like hire purchase, but its not. HP is usually used for large purchases like a car, you get possession of the goods straight away and payments are spread over 2-5 years. For people on lower or stretched incomes (which includes a lot of people now) layaway could be perfect for purchases such as clothes, furniture, white goods etc.

Layaway explained!

Basically you decide what you want to buy, pay a deposit and then pay a weekly or monthly instalment, perhaps over 3-6 months. In other jurisdictions there is a service fee and you would have to factor that into the overall cost. In these times when retailers suddenly collapse, consumers may be wary of paying instalments over a number of months without possession of the goods. And what if you can't pay or if you change your mind. These are all things that need to be clarified before you decide to go down this route. Of course you first have to find a retailer who offers this facility. I could only find one. But I imagine in this straightened times that some retailers would do anything to make sales, while many consumers want to better control and manage their costs, so it just might take off. My only advice is that if it is offered, check all the fine print! But certainly an idea for the times.