Poverty, justification for benefit fraud?

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It is estimated that £1.5 billion is taken from the benefits agency by those who are not entitled to it. 60% of all benefit fraud comes from fradulent claims of Income Support, Job Seekers Allowance and Housing Benefit. All this money that is being taken by people illegally could be used to provide better public services.

Benefit fraud is when someone claims benefits by giving incorrect information, either to get more benefits or to reduce the amount of rent or council tax they pay. Claiming single persons benefit when living with a partner is an example of the kind of false information some give to get more benefits.

A recent report claimed that some who are claiming benefits fraudulently are doing so out of ‘need not greed’. A study conducted by Joseph Rowntree Foundation (JRF) over six years in the East London community links project, discovered that people do cash in hand jobs and claim illegal benefits to pay for priorities such as food and heating.

In today’s UK society, poverty is considered to be extinct as tax credits are supposed to supplement the incomes of the low-paid. This is true in many cases; however some felt the system trapped them in a poverty cycle, as there was no incentive to give up benefits and declare paid work.

Surely the benefits system should be reviewed so people don’t feel trapped and driven to benefit fraud if they are in dire financial trouble? The JRF study recommended that more support and training be provided for those who wanted to get out of the benefit cycle.

Technology is helping the government track down benefit cheats, but what happens if committing benefit fraud is the only way some can afford to live?

Many people are entitled to benefits, take our benefits check-up to see what you can legally claim.

 

0% Balance transfers

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American Express announced earlier this week that they are going to stop offering 0% balance transfers to its new customers (read full article). 0% balance transfer cards are a popular choice when people are struggling to make the repayments on their existing credit card, but are they as good as they sound?

Transferring a balance to a 0% deal can save money and is considered to help a debtor become debt free. On a 0% deal no interest is paid until the deal runs out so if the debtor can repay the outstanding balance within that time they won’t pay any interest. It sounds like a great deal doesn’t it?

However these deals only work if at least the minimum payment is made, otherwise penalty charges may be incurred. Also they are only beneficial to those who can clear the balance before the deal expires. Once the interst free period has ended the standard rate will apply, which in many cases, is extremely high. So should there be an outstanding balance on the card, the monthly interest charges can quickly accumulate. This is avoided by many transferring their balances again to another 0% deal, people who do this regularly are known as ‘rate tarts’ and are thought to be costing the card issuers over £1bn a year.

In contract 0% deals can actually create a debt problem, or worsen it. Many who transfer their balance move it to a 0% card with a higher limit than the balance. A higher limit means a debtor may be tempted to spend more on their credit card, which can result in more debt. The 0% deal only relates to the transferred balance and the ‘purchase rate’ is often much higher. Lenders also automatically use the debtor’s monthly repayment to pay off the cheap balance transfer debts first. So interest, at the higher rate, is added to the amount spent on the card and quickly mounts up, as only a small amount of the balance is being repaid each month. Also some lenders only allow 90% of the debtors credit limit to be transfered, so 10% of the balance can still be incurring high interest.

As explained a debtor may actually incur more interest by switching to a 0% deal if they fail to clear the balance within the time limit or they can’t resist the urge to spend more on their credit card. If the 0% deals aren’t available long enough for the debtor to repay the balance, American Express and other lenders offer an alternative. Low ‘life-of-balance’ transfer rates, mean the debtor will benefit from a low interest rate until the balance is cleared. This rate doesn’t apply to ‘purchases’ which usually results in higher interest. Higher interest can be avoided by cutting up the card once the balance has been transfered. The ‘life-of-balance’ transfer removes the hassel of having to transfer the balance again when the deal expires.

Transferring balances is very common and often seen as the best way of solving debt problems but should the debts become unmanageable there are alternatives. Payplan offer free, impartial debt advice and may be able to provide solutions that result in interest being frozen.

Debt management plans

Individual voluntary arrangements

Debt Relief Orders

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The Citizen Advice Bureau are calling for the government to introduce a new scheme called “Debt Relief Orders” - new insolvency plans put forward by ministers, due to the increase in people looking for debt advice.

Debt Relief Orders will not entail court involvement, unlike bankruptcy or Individual Voluntary Arrangements (IVA). The orders would apply to poeple who have a debt of £15k or under, and less than £50 available surplus each month after essential expenditures.

Before the orders can be created, there needs to be a change in the current legislation.

Source: The Independant 

Credit Card Charges Update

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I previously wrote an entry on this blog about the Office of Fair Tradings investigation into creditors charges. The past week has seen some developments on this topic, so I thought I should give an update.

credit card12.jpgThe OFT felt debtors who are being charged anything from £20-£35 was too much. The charges occur every time a late payment is made, a credit limit is exceeded or a payment has bounced. Banks are also thought to be overcharging its customers by more than £300m a year. The OFT came to a figure of £12, as it would more than cover the administration costs involved when a debtor doesn’t keep to their credit agreement. The OFT approached the creditors in April with the £12 recommended charge and gave them until the end of May to respond. The following banks have agreed to cut their penalty charges but all disagreed with the OFT’s legal reasoning behind the charge of £12.

  • Barclaycard
  • Lloyds TSB
  • HSBC
  • HBOS
  • Egg
  • Cahoot
  • MBNA (American card giant)

By the end of June, Lloyds TSB and HSBC will cut their charges. Barclaycard (the largest card provider) have agreed to cut their costs and will do so from 1st August. Royal Bank of Scotland (who own NatWest) have considered the OFT proposal but will not be cutting them as low as £12. Also Nationwide are planning to respond in the next month and surprisingly Capital One have not responded.

In the creditors’ defense, you can appreciate why they charge high penalty costs - particularly when a customer breaks a signed contract that states they will pay a given amount on a given date. The high charges should act as a deterrent but life is unpredictable and those juggling their debts will inevitably run over their overdraft limits or make a late payment at some point. High charges often make individuals debt situations worse, so those struggling financially will welcome the new £12 penalty charge.

However as many of the lenders have complied with the OFT many will look at alternative ways to make a profit, such as increasing charges elsewhere. For example it has been suggested that free current accounts may soon be a thing of the past and Barclaycard may push APR up from 17.5% to more than 20%.

Is this fair? Should people who don’t breach their credit agreements pay more?