Choice Shonkys put spotlight on rewards credit cards

By Mozo 26 October 2010

Earlier this year we cracked the rewards code to reveal the value Australians were getting for their money with rewards credit cards with the launch of our Rewards Revealer tool. Today, consumer advocacy group, CHOICE, launched the 2010 CHOICE Shonkys, awarding the Commonwealth Bank Awards program a Shonky for low flying jest.

CHOICE singled out the Commonwealth Bank for its shonkiness in how the points are calculated for cards linked to the Qantas Frequent Flyer program. Unlike other rewards credit cards where one rewards point equals one Qantas Frequent Flyer Point, with the Commonwealth Bank card you only earn points at half the rate. It means you have to spend double the amount of money to earn the rewards.

The Shonkys, reminded us here at Mozo HQ of just how important the Rewards Revealer is, and so we decided to take this opportunity to take a look (and highlight) some other shoddy practices and unrewarding rewards programs.

Based on a $12,000 annual spend the three worst performing rewards cards are:

Card	Annual rewards value minus fees
NAB Gold Card	-$90
American Express Qantas American Express Premium Card	-$74
Citibank Gold	-$56

(excluding platinum cards)

Rewarding? Maybe for the banks but certainly not us consumers.

With the NAB Gold Card to earn you a flight from Sydney to London you’d need to spend a mind blowing $937,500 and that’s not the biggest catch. Points expire after 36 months, so unless you are planning on buying a house on your credit card, it’s virtually impossible to accrue enough points to redeem the flight before they expire.

But even more telling is that it’s not just a handful of rewards credit cards that will put you in the red. Of the 71 standard rewards cards in the market, 35 will cost you more than they return in rewards value each year (at $12,000 annual spend after the annual fee).

So, what can you do to ensure you get value from your rewards card? Here are our top tips:

1.      Make sure you are earning more in rewards than you are paying in annual fees.

2.      Always pay off your card in full each month to avoid high interest rates.

3.      If you have a credit card debt, switch to a low rate card instead.

Compare rewards credit cards at mozo.com.au

JUMP IN SENIORS DECLARING BANKRUPTCY SAID MIND-BOGGLING - RECENT STUDY

23 October 2010

Reuters
For more and more seniors, retirement doesn’t mean a debt-free life of leisure. An increasing number of Americans aged 65 and older are declaring bankruptcy, according to a recent study by John Pottow, professor of law at the University of Michigan Law School.
Those aged 65 and older represented seven percent of bankruptcy filers in 2007, a mind-boggling jump from 1991. They are the “fastest-growing age demographic,” according to Pottow’s study.
What’s the culprit for so much debt? Credit cards. Two-thirds of Americans who filed for bankruptcy said credit cards were the key reason for their financial problems, according to Pottow’s research. Besides having more credit card debt compared with younger bankruptcy filers, 44.8 percent of those aged 65 and older also had more plastic in their wallets. “They’re using credit cards as a maladaptive coping mechanism,” Pottow says.
Stephanie Osterland, a supervisor in the bankruptcy department at GreenPath debt solutions, sees an increasing number of seniors living beyond their means. Says Osterland: “They’re just trying to live off of a fixed income, and that’s usually Social Security. Maybe they have a small pension. We find they’ve used credit cards to supplement that income and expenses or they just end up getting into a lot of medical debt.”
In addition to escalating medical expenses, seniors have seen their portfolios hit hard by the lagging stock market. Carolyn Rodi of Saving Your American Dream says those considering bankruptcy should see a credit counselor at a non-profit organization to get their finances in order.
Credit counselors, such as those at GreenPath, help the elderly deal with a stressful situation. “We try to help them focus on what it’s going to look like” after they get out of debt, Osterland says.
Rodi also recommends that potential bankruptcy filers seek out pro-bono legal aid. “There are a lot of elderly people that are being taken advantage of by bankruptcy attorneys and mortgage brokers who are advising them improperly to pay for the bankruptcy, take out a reverse mortgage or to do things that aren’t in their best interest,” she says. ”If you have no income, why should you borrow to pay someone when you can get free legal aid?”
What are the chances of a senior paying off his or her debts? It’s difficult to determine, especially because seniors tend to be on a fixed income. And while finding a job — such as a WalMart greeter — seems like a viable option, it is not necessarily feasible for all seniors to work.
In addition, whether or not a person declares Chapter 7 (which involves the liquidation of one’s assets) or Chapter 13 (which allows debt restructuring) bankruptcy can be a significant factor in determining what one’s lifestyle will be. “If you have to file for Chapter 7 bankruptcy, you may be able to find affordable housing that allows you to just get by,” says Rodi. “Chapter 13 lets you keep your house and doesn’t touch your retirement savings.”
Regardless, filing for bankruptcy is very stressful for anyone. “A lot of our clients in that post-retirement age have a hard time coming to grips with their situation,” Osterland says. “It’s very emotional for them. We try to focus on the future and see if this debt can be lifted off their shoulders.”

Bad banks outed on public list

• By HELEN POW
• From: The Sunday Telegraph
• October 17, 2010

THE worst banks and lenders will be publicly named and shamed by the Financial Ombudsman Service (FOS).

The financial institutions and banks with the most customer complaints for sloppy service, excessive charges or misleading information on products, will for the first time be placed on a public list.

The Ombudsman hopes that by outing the worst offenders, financial firms will improve their service.

"Consumers, the public and the media need to access this information to see who the problem banks are," Consumer Credit Legal Centre principal solicitor Katherine Lane said.

"This sort of reporting is essential otherwise we, the public, cannot scrutinise what is going on and it will just continue.

"We need to know who is worst so we can approach the failing financial institutions and the regulator and ask what is being done."

The FOS received 19,107 complaints in the 2008/09 financial year a 33 per cent spike compared with the previous 12 months.

There was a 33.5 per cent surge in complaints about consumer credit over the year the bulk of which involved home loans and credit cards from 4645 to 6202.

Consumer Credit Legal Centre deals with 16,000 banking complaints each year and another 1000 involving insurance companies.

The centre said it had seen a huge increase in complaints regarding mortgage hardship and repossessions, with National Australia Bank proving the worst offender.

GE Money was also up there in terms of complaints about its interest-free credit cards, which lawyer Katherine Lane said were causing people on low incomes "no end of trouble".

The Australian Bankers' Association chief executive Steven Munchenberg said: "The only reasonable way of doing this, if the FOS has to do it at all, would be to have the number of complaints by institution as a percentage of their total customers.

"Everything we have seen so far gives us real concern that the information will not be fair."

 

 

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M: 0434 52 44 66

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Mortgage delinquencies highest in Sydney and surrounding suburbs, new report warns

Wednesday, 13 October 2010 10:28
Patrick Stafford – Smart Company

 

The Fairfield-Liverpool region and outer suburbs of Sydney are among the worst areas in the country when it comes to mortgage delinquencies and investors should keep an eye on these areas, a new report from Moody's Investor Services reveals.

But the author of the report also says Australia has a relatively low amount of arrears compared to similar economies and urges investors to examine the details of each area and not take the results on face-value. The report points out some areas are over or under-represented when it comes to mortgage delinquencies.

"If you compare our economy to other economies, like the US, or Britain or Spain, you will see our delinquencies are doing quite well in comparison. However, what this report does is highlight the areas within the country that you should keep an eye on," author Arthur Karabatsos says.

The Fairfield-Liverpool region, which includes suburbs such as Fairfield, Liverpool and Casula, recorded a delinquency rate of 2.77%, while Outer South Western Sydney, including suburbs like Macquarie Fields and Campbelltown, recorded a 2.55% delinquency rate.

The report defines a delinquency as failing to make one or more mortgage payments, meaning they are over 30 days in arrears.

The top 10 worst areas were listed as:

·         Fairfield-Liverpool (NSW)

·         Outer South Western Sydney (NSW)

·         North Western Sydney (NSW)

·         Central Coast (NSW)

·         Hunter (NSW)

·         Canterbury-Bankstown (NSW)

·         Lower Western WA (WA)

·         Central West (NSW)

·         Far West-North Western (NSW)

·         Mid-North Coast (NSW)

The report also shows that North Western Sydney, including suburbs such as Penrith, Mt Druitt and Blacktown, account for 6.48% of all 30+ day delinquencies. It is the only region classified as "highly elevated" in terms of contributions to overall delinquencies.

Karabatsos says the report uses the "Moody's Mortgage Performance Indicator" to compare regions, and claims it to be a more accurate measure. He says if a region has an MMPI of over "1", then those region's delinquencies are over-represented compared to the overall country.

For instance. Liverpool-Fairfield represents 4.24% of all arrears in Australia – but the region only accounts for 2.05% of loans. Therefore, the region is given an MMP of 2.07, and is classified as over-represented. Karabatsos says investors should pay attention to this ranking as it will give a more accurate picture of the market.

"When people look at postcodes, they can't get a picture of what's going on. I've had comments from investors about these postcode-based lists, and they literally try and find road maps and figure out the proximity of one postcode to the other."

"But what this does is helps investors find where the problematic loans are. We have gone to this new regional approach because I, for instance, can pick up straight away that Sydney is where all the problem areas are."

Melbourne and Brisbane have recorded some of the strongest results in the country, with three of the top 10 best performing areas located in Melbourne.

One of the biggest factors in high delinquencies is higher LTVs, Karabatsos says. He claims that "without exception, borrowers who have missed at least one repayment have a higher LTV and loan balance than all other borrowers within the same region".

In the All Gippsland region in Victoria, borrowers have a weighted average LTV of 62.52% and an average loan balance of $133,776. However, those who are 30+ days delinquent have LTVs of 73.30% and loan amounts of $$152,667.

However, Karabatsos declined to comment on how these LTVs are affecting the wider-housing market, saying Moody's is conducting further research in that area. Overall, he says, the report should be issued as a warning for investors.

"Look at the results, and see where certain arrears are over-represented. There are some areas in Sydney that are performing very badly but you need to look at whether these areas ore over-represented or not, and what the index categorises them as in terms of their overall contribution to delinquency rates."

Dark side of the honeymoon

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Dark side of the honeymoon

October 13, 2010 - 3:00AM
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Informal debt agreements outside of the Insolvency Act

A new breed of "debt-help'' competitor is springing up, especially online, with names like nobankruptcy.com.au and mybudget.com.au, as well as minor start-ups such as creditplanb.com.au.

These services specialise in helping people overloaded with debt set a budget, negotiate affordable repayment plans with creditors and manage repayments – for a fee.

They are effectively creating informal debt agreements outside of the Insolvency Act.

Their customers, the people overloaded with debt, are not left with a lifelong black mark against their credit profile but may be without rights.

Fox Symes has dominated the debthelp industry for almost 10 years with its daytime television marketing strategy and slogan: "One thing saved me, a phone call to Fox Symes.'

In the past two years, Fox Symes has helped thousands of consumers repay $55 million to their creditors through a debt agreement registered under Part IX of the Bankruptcy Act.

The company administered 51per cent of all debt agreements registered with the Federal Government's Insolvency and Trustee Service (ITSA).

Fox Symes charges, on average, $100 per month in fees to collect one big repayment from the debtor and distribute it to creditors, who accept an average total repayment of 76 cents in the dollar of the debt owed.

That is expensive but that service comes with rights, said Fox Symes director Deborah Southon. "There are a number of operations negotiating de facto debt agreements with creditors but there is nothing there to bind creditors to the agreement,'' Ms Southon said. "A debt agreement is binding on creditors as well and provides debtors with certainty.

"Some people criticise formal debt agreements but they bind creditors as well to a deal and give debtors rights and let debtors move on.''

The marketing of Part IX debt agreements as pseudo debt consolidation instruments has been consistently criticised by consumer advocates and financial counsellors for years but they consistently deliver for creditors who have largely come to support them post-2007 reforms.

Nobankruptcy.com.au's Christian Oey said anybody could negotiate with their creditor if they were persistent enough. "You have to be patient and persistent and try to get to a person with authority over the computer,'' he said. "That's what we do and it can take time but it works.

"It is easier for us to do it for people. We know how things work.'' Mr Oey is a critic of formal Part IX debt agreements.

"There is no reason why heavily indebted consumers should sign a debt agreement. They are an act of bankruptcy that stays with you forever,” he said.

"Sometimes we have to be persistent and patient but we generally get to talk to decision makers at the creditors and do a deal that doesn't involve a debt agreement - that is good for everyone.

"Often people don't understand what the full consequences of a debt agreement are.''

Ms Southon said consumers should be aware that informal or de facto debt agreements do not prevent creditors from taking action in the future. "Informal debt agreements are a problem,'' Ms Southon said.

"A similar trend is emerging in the United Kingdom.

"There are some notorious small operators in this area.''

Formal debt agreements face another challenge from the government.

Changes to bankruptcy laws will add an up-front government fee to formal debt agreements from October 1.

The fee is expected to be $200 - plus an ongoing trailing commission on repayments of 1 per cent, which will be payable to the Federal Government's ITSA.

The debt help industry is already under pressure, and not just from economic stimulus payments and low interest rates.

There are only 14 registered debt agreement administrators left in Queensland.

There are 36 in Australia.

"The new fee will be problematic,'' Ms Southon said. "I wouldn't be surprised if the fee meets a lot of consumer resistance.

"What is ITSA going to do if a debtor refuses to pay the fee or can't pay the fee?

"These people can't pay their bills now.''