Dark side of the honeymoon

Dear john,

You have been sent this article link by charles courtesy of smh.com.au

Personal Message:

Dark side of the honeymoon

October 13, 2010 - 3:00AM
To view the entire article, click on: http://www.smh.com.au/money/borrowing/dark-side-of-the-honeymoon-20101012-16gok.html

Sign up for news updates from The Sydney Morning Herald newsroom emailed each morning and afternoon: http://www.smh.com.au/newsletters/subscription.html

Visit http://www.smh.com.au/ for updated local and world news, sports results, entertainment news and reviews and the latest technology information.

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.''

Credit Card Interest – the Ignored Rate-Rise Impact

Interest rates are set to rise again next month in a “double-whammy” for low-income families struggling with rising mortgage and credit card repayments.


“This latest interest rate rise will have a devastating impact on credit card holders, already struggling to pay back their debts compounded by punishing interest, as well as their mortgages.” says Christian Oey, CEO of NoBankruptcy.com.au.


“The focus at this time each month is on the impact on the home market and mortgage repayments, but what about the 15-20% rates being paid by credit card holders? They’ll increase again too.”


“We’re seeing more and more credit card debt repayments crippling families, rending apart peoples’ lives and forcing more people into bankruptcy,” said Mr Oey.


NoBankruptcy.com.au is a company specialising in Informal Debt Agreements, negotiating directly with creditors on their clients’ behalf.


“NoBankruptcy is a specialist team of debt negotiators, helping clients become financially sound once more, through direct debt management. We genuinely want to help people get back on their feet.” said Mr Oey.


Many factors can lead to people who were once financially sound becoming unable to meet their commitments. Job loss, illness, divorce and family issues can all have the effect of people taking their eye off their finances, allowing them to fall into disrepair.

Big banks eye independent rate rises

Big banks eye political environment to gauge risks of independent rate rises, says analyst Scott Murdoch

From: The Australian September 08, 2010
THE big Australian banks are forecast to independently lift key mortgage rates, to take advantage of the current political environment.

An analysis by Credit Suisse has found the major banks could raise their rates by up to 20 basis points, outside of the official cycle with the Reserve Bank of Australia.

A move of that size would ease the current pressure from higher funding costs but also increase the banks net interest margins, a key barometer of profitability.


The Commonwealth Bank of Australia has been named as the first bank likely to move because it has the highest level of share of the Australian residential mortgage market.


The bank, which is Australia's largest by market capitalisation, has a 26 per cent home loan market share compared to Westpac’s 24.3 per cent, National Australia Bank’s 13.1 per cent and ANZ’s 12.9 per cent.

Credit Suisse analyst Jarrod Martin said it was increasingly likely the banks would move out of sync with the RBA, given the current political climate.

"The political risks are clearer," he said.


"With a minority federal government now being formed by Labor, the major banks can now better assess the political risks associated with undertaking an out of cycle mortgage rate increase.


"We believe it's a prospect given the apparent funding cost and net interest margin pressures currently affecting bank core earnings growth."


Mr Martin said an increase, of up to 20 basis points, would reflect the constant pressure on the banks earnings due to higher funding costs.


The major four banks have to raise more than $100 billion over the next year to fund their current and future mortgages.

"This should be viewed as a glass half empty issue," he said.


"While such a development would be a positive incremental development for bank earnings it should be seen as defensive in nature and highlights the core earnings pressure in the industry.


"It helps compensate for the number pressures on bank core earnings but it does not increase the sustainable earnings power of the sector."


Still, a price leader needs to step forward. In the past, Westpac and the NAB have taken the lead and raised outside of the RBA but have faced intense political criticism and scrutiny.


Westpac currently has the highest standard variable rate of 7.51 per cent, compared to ANZ's 7.41 per cent, CBA's 7.36 per cent and NAB's 7.24 per cent.


"A price leader needs to emerge," Mr Martin said.


"We see CBA as the most natural price leader that needs to emerge to allow industry-wide mortgage rate increases to be effected," he said.


The analysis found that if mortgage rates were hiked by 20 basis points, each of the banks would experience an increase in their net interest margin.


CBA's net interest margin would move from 2.04 per cent to 2.13 per cent while Westpac’s would lift from 2.27 to 2.37 per cent.


The impact at the banks with smaller mortgage books would be less significant. ANZ’s margin would rise from 2.42 per cent to 2.49 per cent and NAB from 2.25 per cent to 2.31 per cent.

Blog-smacked!: Poker machines = STUPIDITY TAX

Blog-smacked!: Poker machines = STUPIDITY TAX: "All this talk about poker machines reminds me of an old saying I like: Poker machines are just another STUPIDITY TAX!"

Poker machines = STUPIDITY TAX

All this talk about poker machines reminds me of an old saying I like:

Poker machines are just another STUPIDITY TAX!

0% balance transfers debunked

By Hamish at http://www.mozo.com.au/

As winter dies and the stress of losing weight for summer sets in, spare a thought for credit cards that have gorged for months and are entirely unfit for the christmas binge. Now’s the time to think about a balance transfer.

Since you’re a clever sort, you’ll be ogling those super-slim interest rates on Mozo’s credit card comparison page — and hey, who hasn’t snuck a glance at a lusty 0% balance transfer rate? But here’s the rub: that low interest rate could end up costing you money.

“Zounds,” you might reply, and return to your ogling, but bear with us. We’ve been having a bit of a play with our nifty credit card calculator, which spits out the actual cost of a credit card — in place of all this interest rate and balance transfer malarky. The cost is the total you’ll pay in interest and fees to kill off that debt, and as it happens, it’s the best way to judge a credit card.

So let’s peek beneath the balance transfer covers.

•Citibank’s Clear Card, for example, offers a 0% for 6 months on balance transfers — and a stupendous purchase rate of 11.99% for 12 months. However, if you don’t pay off the transfer within that time, the balance reverts to a corpulent 21.24%.

For a debt of $3000, with repayments of $200 monthly, you’re looking at a cost of $308 in fees and interest.

•Suncorp’s Clear Options Standard credit card, by contrast, offers 1.9% for 12 months, and then 17.99% on the outstanding balance transferred. Punch in the same numbers, and the cost of knocking off that same debt is only $135.

The difference is, well, clear.

•St George’s Vertigo credit card has a lousier balance transfer offer still, at 2.99% for 6 months. However, after 6 months any unpaid balance doesn’t revert to a sky-high cash rate, but to a quite lovely purchase rate of 12.49%.

So what does that all mean? The same debt, with the same repayments, will cost $252 to pay off with St George.

And if, ahem, your repayments drop to only $100 each month, while that debt blows out to $5000, here’s the cost of each balance transfer in fees and interest:

Citibank Clear Card: $4639
SunCorp Clear Options Standard: $2304

St George Vertigo: $1974

The conclusion? Pay of that balance ASAP! But if that isn’t feasible, don’t just grab the best headline rate: it could be twice as expensive.