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.

Northern Exposure is good for the Republic's consumers and economy

There has been a lot of bellyaching from business interests and some politicians about consumers heading to Northern Ireland to access cheaper prices and save money. Brian Lenihan pleaded with consumers to shop at home because by shopping in the North the state was losing revenue needed for investment in schools and hospitals. Firstly I will take Brian Lenihan more seriously on taxation when the massive tax loopholes which allow the super rich to pay little or no tax are closed off. In 2006 we learned that "between the 1999 tax year and 2003, a sizeable number of multimillionaires - 184 to be exact - declared incomes of more than €1m a year and paid no income tax at all." That's not to mention the approximately 3,050 tax exiles who live here for less than 182 days and pay no tax at all. Secondly individual and family incomes are under huge pressure from the high inflation, particularly in food costs over the last 2-3 years. On top of that people's incomes are being squeezed and indeed some being decimated as the result of job losses. The Government mantra was "shop around" and therefore any rationale or sane person would avail of the cheaper grocery prices in the North to help makes ends meet.

Of course the retail and business sectors have been trying to suggest that the Northern shopping phenomenon is all a media creation. The reality here is that if consumers went to Newry or Lurgan and didn't get value or found that the prices were not all that different they would just stop going. The fact that there are still travelling in large numbers indicates people are saving money and getting good value. Of course we had all the usual suspects blaming the high labour costs, rental costs, and any other costs they could think of. I heard a guy on Q102 in November justifying the difference in prices based on the back of an envelope exercise where he had compared rent costs in Dublin and Belfast and also labour costs. Somehow he appeared to think that this rip-off could be explained away on the basis of a few phone calls without any detailed or proper analysis of a whole range of underlying costs. Indeed he like none of the these apologists mention the lower corporation tax and the lower social insurance contributions employers pay here. Neither do they mention the strengthening euro which should be translating into cheaper prices.

Well finally some light was shed on this issue when before Christmas when Forfas published a report which clearly demonstrated that the price differential was not justified. They found that at most the price differential should be in the region of 5% not the between 16% to 31% difference found in independent studies of grocery prices. The Forfas report was based on information provided directly from retailers and most importantly showed that the cost of the goods is the key factor affecting resale prices, its states "the cost of buying goods for resale is the single biggest cost incurred by retailers and accounts for three-quarters to four-fifths of their total costs". So at last clear and independent evidence that labour, utility and rental costs cannot be used to explain away the huge price differences, the reality is that retailers were making significant margins and profits. I suppose the market will always charge what it thinks the consumer will pay and perhaps during the boom years enough (not all) people were willing to pay high prices.

However I think a lot of retailers and businesses were slow to respond to the changing economic circumstances that many consumers found themselves in early last year. They were killing off the golden goose they plucked so easily for a decade. And as a result people began to buy less, switch to the discounters and more recently go North.



Falling through the floor-hopefully prices will follow!

Obviously there are short term benefits for consumers in terms of saving money by heading North. However there are medium and long term benefits as well, not only for the consumer, but for our economy and society as a whole. Having such strong competition available cross border will force retailers and businesses here to reduce their prices and offer better value and service. We saw that to a certain extent over Christmas and New Year with the major reductions in some stores. I believe if retailers here are to regain and retain customers and market share they will have to cut prices.

We are always told that one of the greatest benefits of the EU is the single market and indeed the EU Consumer Policy actually promotes cross border competition stating "the potential therefore exists for deeper EU-wide retail markets. Opening up cross-border retail markets is the key to unlocking the potential of the retail internal market. As cross-border shopping develops as a credible alternative to national markets, consumers both have greater choice and national markets are subject to greater competition."

So contrary to what some politicians and retailers say this "Northern exposure" is actually a good thing. Yes we will lose some tax revenue in the short term, but in the long term for our society and economy, it has positive aspects because it will keep and hopefully force prices down and reduce the cost of living for all and make us more competitive.

Financial Reform-Shame to waste a crisis!

I have survived the Christmas, thanks to the good weather did not eat or drink as much and watch as much bad TV. The dry and fine weather meant I could get out on the farm down home in Borrisokane and do some long overdue work cutting some ditches and clearing scrub. Like every other sector farmers have been hit by the recession and I am expecting interesting negotiations with those renting my land in the coming weeks on prices for this year. On a positive note I got a letter from Tipperary GAA letting me know I had won €200 in the weekly lotto draw. Would be great now if the Premier followed that up with an All-Ireland in 2009 as well!

The fresh air gave me some time to reflect on 2008 and of course the 2 big stories of the year were the collapse of our banking system and big shift in consumer spending and habits. So in this blog and the next will look at those issues in depth. But as well as looking at the problem I will try and come up with some possible solutions.

We need a radical overhaul of the financial services sector, people talk of regulatory reform but the fundamental issue is that the system is sales and commission driven and shareholder value trumps everything else. Of course it makes sense to incentivise people, but there have to be some limits and safeguards in place. Unlike buying a pint of milk, consumer protection for consumers purchasing a mortgage needs to be strong and effective, because if things go wrong its very serious for the individual. And as we have seen in recent months, if things go wrong on a grand scale, its very serious for all of us. We have seen this at its worst in the US. Sub prime lenders employed people on a commission basis who went out and sold mortgages to people to buy houses they couldn't afford. The salespeople didn't care whether people could afford the mortgages or not, they got paid for selling them. The sub-prime lenders didn't really care either because they repackaged these mortgages and sold them onto respectable financial institutions who are now dealing with these toxic assets and the fallout. It says a lot about the sharp suits in these institutions with their MBAs that they paid good money for such lousy assets.

The only difference here is that the sub-prime market was only getting going when the bubble burst, things could have been a lot worse if the credit crunch started now instead of August 2007. But a lot of other things were going on here, banks were shovelling out money on personal loans, mortgages, credit cards. I know of cases where people got huge bonuses and holidays for selling products that were definitely not in the interests of the customer. The salesperson didn't care, they got the bonus and if there is a problem it's the customers problem. The Financial Ombudsman has done excellent work on exposing some of the worst cases, but I suspect these are just the tip of the iceberg. I accept that customers have responsibility too, but for many people financial products and services are mind boggling and they are quite literally at the mercy of the salesperson.

At another level banks as we have seen shovelled out money to property developers and builders as if they felt they could defy logic and the premise that what goes up must come down. Like sheep the banks cheered on by stockbrokers, economists and other "experts" lent billions. That policy came home to roost for all the banks, especially Anglo Irish which is most exposed and we are all suffering as a result. No one has taken responsibility for this, Sean Fitzpatrick and David Drumm in Anglo did resign, but their resignations were related to concealment of directors loans. I am sure their resignations will be temporary hiccup, they will take comfort from other high fliers such as Kryan McLoughlin who had to resign as a director of Davys a decade ago due to embarrassing personal tax issues, but is now more powerful than ever. Indeed as Deputy Chairman of Davys which is heavily involved in the Aer Lingus takeover bid on behalf of Ryanair and as a director of Ryanair itself, he will be playing a crucial behind the scenes role in 2009. (The Ryanair takeover of Aer Lingus would be a disaster for consumers in my view, this is something I plan to return to in early 2009)


An apology for only $59.95!

So what can be done? Well Barack Obama's new Chief of Staff Rahm Emanuel is on record as saying, "never waste a crisis" That idea that our current difficulties present opportunities to reform the system in a way that was unthinkable a year ago to prevent a repeat of what has happened.

It might have been necessary initially given the urgency of the situation for the Government to engage solely with the banks, but now there is no excuse. If we are to reform the financial services system, the Government needs to engage with all the stakeholders including consumer organisations, rather than just the banks. Secondly all need to accept that "principles based" or light touch regulation has failed (or as I would refer to it soft touch regulation) and we need a rules based system. Thirdly the Government needs to carry out the review of the effectiveness of the financial regulator in its consumer protection role as promised in the report of the Consumer Strategy Group. Fourthly we need to investigate the possibility of a free impartial financial advice for consumers along the lines being discussed in the UK and that's just for starters. This is one of the issues which the Carnegie Commission on Civil Society is looking at as part of our work and we plan to hold an event in London in February to look at reform of the financial services sector for the benefit of all. So after that I may even have more ideas.

The heavy levy!

In November the Government announced a new package of measures in the private health insurance market. This was in response to the surprise decision of the Supreme Court in July to quash the existing risk equalisation scheme that was a key part of our private health insurance market. Up to then there were a number of basic principles underpinning the private health insurance system here, such as community rating, risk equalisation, open enrolment and lifetime cover, (explanation of these terms here). Once the risk equalisation scheme was declared illegal, one leg of the stool was gone and the Government had to come up with a solution.

The Government claimed that the abolition of the risk equalisation scheme would lead to a massive increase in premia for older people. Obviously no one would be in favour of that, but I don't really know how that could be the case. Most older people are insured by VHI, they have 99% of the over-80s, and 90% of the over-60s in the market. Also I know the Government was in turmoil following the medical card fiasco, but looked more like a manufactured crisis to me. Yes companies could design schemes that were more attractive to younger people, but they could not refuse to allow an older person to join and as far as I know all schemes have basic entitlements. So rather than coming up with a solution that would have ensured the viability of the market overall and protected the sector from the collapse of one company, the Government in my view has come up with a scheme designed to protect the state company VHI, allow it to maintain its dominant position, stifle competition and most importantly drive up costs for consumers and indeed force some people to give up on private health insurance.


Do you talk "Insurance Jive"?

The Government response was two-fold, the three companies VHI, Quinn Healthcare and Hibernian Health will have to pay a levy of €160 on all adults over 18 and €53 on all on children insured by them. It is being claimed that this levy will fund additional tax relief for the over 50s. Basically the three companies will receive money from the state for the tax relief (as this is given at source) and will have to pay the levy on all their customers. It has been claimed that because VHI has a higher number of older customers it will receive more than it has to pay in the levy, some claim up to €30m, while the other companies will pay more to the state that they will receive in tax relief payments. So in effect this is risk equalisation by the back door.

When she made the announcement the Minister for Health Mary Harney T.D. stated that she hoped the levy would not be passed on to the consumer. Some chance of that, we can see what has happened, VHI and Quinn have increased their premiums by 23% and 16% respectively and Hibernian yesterday also increased their premiums. The end result of all this is that younger people, many with families may have to cancel their policies and are less likely to take it out in the first place, because the prices are going up and they are getting no additional tax relief. This is especially so in the current economic environment. That is not good news because stated Government policy has been to encourage people to take out health insurance as early in life as possible. In 1999 the Government promised to introduce lifetime community rating, the idea that those joining later in life could be charged more and also I believe would have to include provisions for reductions for those who have been members for a long period. Nothing happened, although they are promising to introduce it now again ten years later. At the moment a person joining at 60 will pay the same premium as a person who joined at 30 and has been paying the premium for 30 years. The only difference is that as you get older the period you need to wait to be covered after joining increases from 6 months for those under 55, a year for those 55 to 64 and 2 years for those over 65.

The new scheme will apply retrospectively from January 1st 2009 once the legislation is published and passed in next legislative session. Hibernian Health has launched an "Axe the Levy" campaign and both they and Quinn have stated they are considering their legal options. Its unlikely the Government will change their mind now, although they may accept some adjustments to the promised legislation. They also say this is a temporary 3 year measure to allow time to come up with a comprehensive plan for the sector. Could we be going the route of universal health insurance as promised by Obama in the States?

We definitely need a well thought out plan for the future of the sector in Ireland, that meets our health needs and is competitive and affordable. If a universal plan can do that, I say yes. In the meantime we are stuck with a levy and a plan that appears designed to prop up a state company, where consumers and patients are the main losers.

Look this gift horse (voucher) in the mouth!

Its that time of year again, where many of us drag ourselves around the shops to buy those presents for family and friends. I am not one of those organised people, who draft a list in September and has all the gifts bought and wrapped by November. I usually leave things until the last minute, indeed I can remember some years where I only started on Christmas eve, not to be recommended! For people like me, the gift voucher is the great saviour. If I know that a friend likes reading rather than spend half an hour thinking what book they would like and worrying I might buy a book they won't read. I get them a gift voucher which they can use at their leisure, or so you think! Not only can they be a convenient and safe option as a gift, many people also like getting them, including yours truly. A survey in the UK found that over 40% of people would prefer to receive a gift voucher rather than a traditional present.

Earlier this week on behalf of the Consumers’ Association of Ireland (CAI) I was advising consumers on Today with Pat Kenny among others to be careful when buying gift vouchers as presents for family and friends. I was pointing out that there are a number of pitfalls which consumers need to avoid when buying a gift voucher so that they don’t end up giving a present with a lot of strings attached. At the moment each retailer and business is free to determine the terms and conditions of the vouchers they sell.

One of the biggest issues with gift vouchers is the expiry date. Its important that consumers check this, ask the salesperson if the voucher has an expiry date and if so when will the voucher expire? Some businesses impose a short timeframe of only 6-12 months, so if the voucher is presented after that date there is no legal obligation on the issuer to accept it as payment. The Fine Gael spokesperson on Enterprise, Trade and Employment, Leo Varadkar highlighted this back in February, with one example where the voucher expired after 3 months. Ideally there should be a date on the voucher and there should be no time limit. If there is an expiry date, best to buy one where it will last for at least 2 years. In many cases retailers will accept a voucher after that date, but I have come across cases where they do not. The National Consumer Agency have a list of expiry dates from some of the larger businesses and retailers.

Its also important to know that if the retailer or business closes down, the voucher cannot be redeemed, likewise if the shop/business changes ownership there is no guarantee that they will accept vouchers issued by previous owners, so if you are giving a gift voucher for a large sum there is a risk involved. A relative of mine got a voucher for a travel agent for €400, but within a few months they closed down and she had no comeback.


In Prague for the weekend, but seeing more of the bars than the shops!

CAI would like the law changed to enhance consumer protection. In a number of states in the US, such as Illinois, New Hampshire and California there are specific laws on gift vouchers. In particular the law should include provisions that all gift vouchers would have a lifetime of 5 years, a requirement that the issuing date and all terms and conditions must be included on voucher and that no fees or charges can be applied. Also where there is a small balance left on the voucher, e.g. 5% of the value of original sum, the consumer has the right to seek a cash refund. And in case people think I am advocating that consumers hold unto their vouchers for 5 years, I am not. It makes sense to use the voucher as soon as possible as with inflation it loses value over time.

At Debts Door

The Minister for Social and Family Affairs answered a number of questions in the Dail on Tuesday in relation to number of people seeking assistance from the Money Advice and Budgeting Service (MABS). Its shows that the number of new clients going to MABS in the 11 months to the end of November has from 12,400 for the whole of last year to 15,600 up to the end of November. These figures show a 25% increase and that doesn't include the Decemeber figures. On top of that the numbers calling the advice line which was established in October 2007 is almost 11,500. MABS is an excellent service and I would encourage people who are under financial pressure to seek their assistance. I have heard stories that there are waiting times at some offices, not sure if this is true. If it is then the Government need to provide more resources to the MABS service, because the reality with increased demand, the pressure will grow on the hard working MABS staff who can only see so many people in a day.

Likewise we hear of the pressures on organisations such as St Vincent De Paul where demand for assistance and financial help have grown massively too. And in recent days the Irish Times have been running stories about areas (such as my own next of the woods in South Meath) where the recession is biting. I am old enough to remember the late 1970's and early 1980's when money was scarce and inflation from memory was in the 15-20% bracket. My father died suddenly in 1978 when I was 7 and since he was a farmer our whole livlihood was wiped away. There were no EU farm subsidies back then, you lived from what you produced from the farm. Apart from the emotional loss for my mother and my 3 siblings and I, financially times were very tough too. The memory of those difficult times have stayed with me and that is why I really believe the Government needs to do more to assist people whose are facing tough times. If we give people a hand up now they will be able to rebuild their lives and start contributing again when they are back on their feet.

In their pre-budget report the UK the Government have reduced VAT from 17.5% to 15%, have announced a package of measures to assist those in financial difficulty with mortgage debt such as a £200m mortgage rescue scheme, 3 month stay on repossession and increased resources for money and debt advice. Here apart from a slew of direct and indirect taxation the only positive step has been to increase mortgage interest relief marginally for first time buyers.

We have had the bail out for the banks, its time for the Government to come up with a strategy to support ordinary consumers who have lost their jobs, livlihood and income because of the recession along the lines of what the UK Government have done.

The Never Buy Insurance Policies!

I got a call this week from a sales rep at O2. You see back in July I bought an iPhone, or as one of my friends calls it, the Jesus phone. I am fairly happy with it, the GPS comes in handy when I am lost as I was last weekend...there are a few problems such as texting and I understand from a friend that integrating it with blue tooth in his car is a problem.

Anyhow the sales rep from O2 wanted me to buy insurance to cover my phone in case it was stolen, lost or broken. Basically for €9 a month I could insure my phone if I lost it, or if someone stole it and made loads of calls to Australia. My response was why? Insurance in basically there to cover substantial loss, i.e. if my house burned down, I wouldn't have a home and would still have a big mortgage, so it makes sense to pass the risk to my home insurance company in return for an annual premium. The same applies to motor insurance in that if you cause or are in a serious car collision, the costs could be exorbitant. Indeed motor insurance is unique in that we are required by law to have it if we have a car.


The "Never Pay Policy" sounds good!

But the idea that I should pay €108 a year to insure a phone which I could buy if it was stolen or lost for between €129 to €229 is mad. And even if someone steals my phone and makes calls I would like to think I will know soon enough to be able to cancel it with O2. A few years ago when I bought my mp3 player in Scotland for £50, I couldn't believe it when the assistant almost insisted I take out an insurance policy on it.

These policies are all the rage, because on one hand the providers whether they be telco companies, white goods retailers or airlines make a nice profit on these worthless policies and they also then of course try to fob people off if they have a problem by telling them to make an insurance claim even if they are responsible for dealing with the consumers problem. Thats bad news because the insurance industry is notorious for anti-consumer practices, as someone once put it they will insure you if you fall out a window, but not when you hit the ground.

Consumers should run a mile from these dubious policies, they are expensive and of little value in my humble opinion.