MSE News: Low income consumers pay higher credit costs

Former_MSE_Helen

This is the discussion thread for the following MSE News Story:

"Low income consumers are typically paying £174 a year on extra costs on credit from high street lenders ..."

Read the full story:

Low income consumers pay higher credit costs

molerat

So those that cannot afford to borrow and default on that borrowing pay more. Pope, bears, catholic & woods springs to mind.

Rafter

Which is exactly why current competition policy that says that as long as switching accounts is easy then fees and charges will be competitive is a nonsense.

If banks simply prevented lower income groups from getting into trouble and were only able to charge the costs of administration for failed direct debit or breached overdraft fees - i.e less than £5 a time then the banks would stop seeing £ signs from raking in fees and charges and these customers would have to get better at budgeting and spending control, knowing the bank won't allow them to keep spending and raking in unreasonable charges.

Problem is that bankers, politicians and civil servants are generally not 'low-income' households and therefore don't see the pressing need to make the system fairer.

R.

anguk

Rafter wrote: »

Which is exactly why current competition policy that says that as long as switching accounts is easy then fees and charges will be competitive is a nonsense.

If banks simply prevented lower income groups from getting into trouble and were only able to charge the costs of administration for failed direct debit or breached overdraft fees - i.e less than £5 a time then the banks would stop seeing £ signs from raking in fees and charges and these customers would have to get better at budgeting and spending control, knowing the bank won't allow them to keep spending and raking in unreasonable charges.

Problem is that bankers, politicians and civil servants are generally not 'low-income' households and therefore don't see the pressing need to make the system fairer.

R.

I agree. How much money does a bank make from someone who has cash in their account and never incurs fees? Nothing. And that person is also getting free banking. The banks make much more money from people who incur fees, as long as they're making money they'll continue to give credit, overdrafts etc to those who can't really afford it.

ILW

anguk wrote: »

I agree. How much money does a bank make from someone who has cash in their account and never incurs fees? Nothing. And that person is also getting free banking. The banks make much more money from people who incur fees, as long as they're making money they'll continue to give credit, overdrafts etc to those who can't really afford it.

Are you saying that people on a low income are too stupid to turn down credit they cannot afford?
Rather patronising.

Wutang_2

ILW wrote: »

Are you saying that people on a low income are too stupid to turn down credit they cannot afford?
Rather patronising.

Rather missing the point I think, clearly not whats said.

VT82

Rafter wrote: »

If banks (...) were only able to charge the costs of administration for failed direct debit or breached overdraft fees - i.e less than £5 a time then the banks would stop seeing £ signs from raking in fees and charges

But the cost isn't really just the negligible cost of a stamp and a letter though, is it? If no one ever went over their overdraft limit, banks wouldn't need...

- An in-house developed, or external paid for, credit scoring system
- Underwriters
- A Credit Services phone team
- A Credit Services admin team
- Credit Service managers
- A Divisional Director for Credit Risk
- A Debt Recovery team
etc. etc.
As well as the chasing phone calls and letters/postage costs

Someone has to pay for this. Some of it is paid for by people who borrow but don't go over their limit - in respect of higher interest rates than you get on your savings, but it is quite right that some of it is paid for people who cause it to be required - those who go over their limits or fail to pay.

Spiggle

molerat wrote: »

So those that cannot afford to borrow and default on that borrowing pay more. Pope, bears, catholic & woods springs to mind.

:rotfl::rotfl::rotfl: Exactly my thoughts when I read the headline! :rotfl::rotfl::rotfl:

anguk

ILW wrote: »

Are you saying that people on a low income are too stupid to turn down credit they cannot afford?
Rather patronising.

Of course that's not what I'm saying. :huh: People on a low income are not stupid at all but many do get credit when they know they can't really afford it (I've done it myself in the past ). If someone is struggling to pay the bills and a company is offering money it's very tempting. If people weren't desperate companies like Provident, PayDayLoans etc wouldn't exist. Banks, in my opinion, profit from (and also take advantage of) the people who are struggling the most.

Butterfly_Brain

No news there.
It has always been that way for donkeys years...The rich get richer at the poorer's expense

Pincher

Low income is just one long downward spiral.

When you are poor, you can't afford to bulk buy, because it ties up money you need elsewhere. If they could get cheap credit from wholesale discount stores, they could save hundreds a year.