Debt DelusionsProfits like the banks are making couldn’t come their way without your consent. So when it comes to keeping control, it’s all up to you. You can be sure that finding the truth about what credit is costing you is not going to be as easy as watching a TV programme or reading a newspaper. It means looking at the terms and conditions, doing some sums, and in this way uncovering a carefully constructed series of tricks to part you from more money than you realize.
Here are a few of these tricks – please let me know on the forum of Warriors Against Debt if you come up with more.
Hidden costs
Now that the National Credit Act is giving people a little more protection from banks and other lenders, the chances are the banks are looking for ways to get around that ... and chances are that will be through adding fees and costs.
That’s something you should watch out for very carefully. In case you were still under the impression that you annual card fee was around R50 a year, obviously you haven’t caught up with the post-NCA shenanigans ... apparently in 2007, the average annual card fee (often this includes a loyalty programme fee) was over R250.
Even credit cards that supposedly do not charge an annual fee have very mysterious clauses in their small print that go something like this: “your monthly statement will include all fees and charges set out in the quotation”.
What might these be? They’re not the fees you will pay them for defaulting and collecting (we’ll talk about that a bit later). So what could they be? I couldn’t find out. When I went to the FAQ section for Virgin Money, they said even less – here they said that the monthly statement would include ...
“Payment due date
A list of transactions
Interest charges and fees
Outstanding balance
Minimum monthly payment due”
I read through the terms and conditions again. Finally I found this ...
“10.3 We may change the service fees if specified in the Quotation, by written notice to you, provided that the service fees will not exceed the maximum amount which may be prescribed in terms of the Act from time to time.
10.4 If applicable, the monthly service fee will be included in your monthly
repayments.”
Okay, so maybe there will be a “monthly service fee”. We don’t know how much. I seem to remember getting a mailing some time ago from Virgin trumpeting the “no annual fee” thing they go on and on about. In the small print on the application I read that there was a monthly fee instead. I thought that was outrageous, a big cheek – but I can’t confirm it anymore as I don’t have the letter (it went straight into the dustbin) and a search on their website revealed nothing. Either things have changed or they’ve hidden it better – I don’t know.
Lesson: advertisers and lenders will tell you only what they want you to know. The full story may be very hard, almost impossible to get. On the other hand, you are giving them massive powers and rights – we’ll look at those a little later.
Lesson: the terms and conditions – the small print – tells you more than any other material you will read. Some of it will come as a shock! No wonder it’s always so tiny, so hard to read, so boring to look at, so uninviting. They’re counting on you not reading this bit – and most people don’t!
Lesson: everything – everything – aside from their legal documents (the terms and conditions) is part of the advertising
... take a look at this, also from Virgin’s FAQ section:
A: Hell yes!
A: We are of the opinion that when a dilemma such as this arises, buy both
A: Yes. Next question.
... and so on.
A harmless bit of fun? Part of the Virgin brand? Hmm. I’m not sure. Is it fun to make massive profits for Branson and co? And work very hard so they can “party till the early hours every weekend”? Is it fun to lie awake worrying about your debt while they’re hot air ballooning? You decide.
In case you think I’m picking on Virgin, you will find that most of the banks have almost identical terms and conditions. But Virgin may have seduced you into thinking they’re on your side, “fighting the tyranny of the big banks”, or as one of their press releases written by their public relations firm stated,
‘“Virgin Money launched in South Africa to do one thing – shake up the financial services industry and offer customers a better deal,” said Branson.’
Lesson: the brand is everything you think of when you think of a company. Brands are very big business because they play on people’s emotions and part them from their money with a smile. For example, Virgin has a very strong brand. People want to be carefree, sexy, fun and successful, just like Branson. Virgin knows this, and they play it up for all they are worth. So flippant stuff in the FAQ section like “Can money buy happiness?Hell yes!” aren’t just a bit of fun – they’re part of building and maintaining a very profitable brand. Behind closed doors, Virgin is big business and it’s serious money. And they wouldn’t be making those profits if it wasn’t for the fact that consumers “buy” that carefree, fun image. It’s making them rich, because it’s making you poor ... so don’t be fooled, any more than you would be by the glitz of a casino.
Default and admin costs
According to the terms and conditions, your monthly statement will include:
“3.1.9.1 the amount due by you in terms of this Agreement the payment of which is
deferred and on which interest is calculated. This amount includes:
3.1.9.1.1 interest;
3.1.9.1.2 the fees and charges set out in the Quotation;
3.1.9.1.3 default administration charges referred to in 30; and
3.1.9.1.4 collection costs as referred to in 32,”
What might those be?
“If you default on any obligation under this Agreement, we will levy (and you will pay)
default administration charges in respect of each letter we need to write to you in
terms of the Act. Such charges will be equal to that payable in respect of a registered
letter of demand in an undefended action in terms of the Magistrate's Court Act
together with necessary expenses incurred in delivering such letter.”
Sounds like a lawyer’s letter to me. And that is going to be expensive. That introduces us to another “beneficiary” you are going to make rich – the lawyers. When you get to this stage of debt problems, you are going to start paying their lawyer’s fees too.
Even if you come to an arrangement with the bank or whoever the lender is, you may never make a dent in the capital because every cent you can afford to repay monthly will go to interest and legal fees.
So what DOESN’T your monthly statement include?
Why not? They don’t want you to know, that’s why. But you can do your sums yourself. Make sure you take your heart pills first.
Lesson: every communication you get (including your statement) is designed to tell you only what they want you to know and to conceal the truths that might shock you into putting an end to your debt as soon as you possibly can.
Loyalty fees
Someone I know was involved in the launch of the Edgars Club many years ago. The club was started purely because, after costs, it was going to make Edgars millions in fees. At the time, the cost of the club was R2 a month.
They launched it in a way that they knew wasn’t very straight, but they took a chance that they would get away with it, and they did. They used something called inertia marketing. Inertia marketing is where you sign someone up for something unless they get off their backsides and make an effort to say “No”.
It’s absolutely ideal for a marketer if you can get away with it because you have a much higher conversion rate than normal. You force people to make an effort to avoid paying. The effort comes when you have to decline, not when you have to agree.
They knew that due to human nature: laziness, mistakes, forgetfulness, misunderstandings, not getting around to it ... many people who didn’t especially want the membership would still become members. This wouldn’t happen if you did it the other way around – asked people to make an effort to join up.
And because the fee was low, they’d think “Ag, it’s just R2”. They’d weigh up the effort of writing a letter, getting a stamp and posting it – or sitting for hours in a telephone queue - or standing for hours in a queue at customer service – and decide that for R2 a month it was worth not going through the pain. Or they promised themselves they’d do it “later” – and never did.
Nowadays have you noticed that they’re using inertia marketing to get you to allow them to sell your personal information to other marketers? In other words, you have to plainly say “No”, or else it is taken to mean that you agree. And they may make it hard for you to say no!
Have you noticed that when you sign on for internet banking and many other things, the boxes that say you allow this have already been ticked and unless you are extra-careful, you will give them permission without noticing?
Lesson: A lot of loyalty programmes that are supposed to be great for you ask for a fee that is quite significant – it could easily be around R150. The idea is that it is worth it because you will save far more or otherwise benefit. But are you sure? Is it really worth it? As you try to reduce your living costs, have you forgotten about this avoidable one?
Lesson: Marketers use our human failings, weaknesses and social pressures like being too busy, against us.
What about the powers you give away?
This is what you agree to when you sign for your credit card ...
35.1 You confirm that we may transmit to any registered Credit Bureau/x information
concerning:
35.1.1 this Agreement and your account with us;
35.1.2 any non-compliance by you with the terms of this Agreement.
35.2 You agree that such Credit bureau/x will provide a credit profile and possibly a
credit score on your credit-worthiness. You have the right to contact such Credit
Bureau/x, to have the credit record/s disclosed and to correct any inaccurate
information.
35.3 You agree that we may:
35.3.1 make enquiries to confirm any information provided by you in the application
form;
35.3.2 seek information from any Credit Bureau when assessing your application and
at any time during the existence of the Card Account; or
35.4 You agree that we shall be entitled to obtain and disclose the above information:
35.4.1 if we think it necessary or it may be of benefit to you;
35.4.2 when we are legally compelled to do so;
35.4.3 where it is in the public interest to disclose; or
35.4.4 where disclosure is in our interests.
- leaving all that aside ...
- look at the highlighted bits that you have agreed to.
And, for me, the real biggie:
What about your personal details? Name, address, phone number, age, marital status, employment, etc.? Do you want to spread that far and wide? Let’s see ...
40. Personal Information
40.1 All your confidential information and consumer credit information, as defined in the Act (hereafter ‘personal information’), obtained by the Bank and/or Virgin Money pursuant to this Credit Card Agreement will be owned by Virgin Money and may only be used by Virgin Money and the Bank to the extent permitted by or necessary to give effect to this Agreement and statutory requirements.
40.2 We will monitor or record some phone calls with you.
40.3 Personal information received or given to us will be treated as received by or
given to Virgin Money at the same time. We may transfer any personal information in its possession to Virgin Money from time to time.
40.4 The Bank and/or Virgin Money will both keep your personal information for only as long as it needs to, or is allowed to by law.
40.5 The Bank or Virgin Money may process, record or disclose your personal
information to:
40.5.1 search credit references and fraud prevention agencies’ records so the Bank
and/or Virgin Money can manage your account with it and make decisions about credit, including whether to make credit available, or to continue or extend your existing credit. The Bank or Virgin Money will also release positive and negative information to, or obtain such information from Credit Bureaux about any account of yours, including information about any payments which you have missed, both when assessing an application or during the existence of an account;
40.5.2 assess any application for credit or other financial services you make (we will sometimes use a credit-scoring or other automated decision-making system to do this);
40.5.3 manage your accounts and policies, and make decisions on questions about any application, agreement or correspondence you may have with us;
40.5.4 carry out, monitor and analyse its business;
40.5.5 contact you about other products and services the Bank and/or Virgin Money considers to be of interest to you, unless you have elected to be excluded from any marketing campaigns in accordance with section 74(6)(b) of the Act;
40.5.6 comply with any laws or regulations in any country;
40.5.7 check your identity to prevent money laundering (passing money through a
business so that the police cannot trace where it came from);
40.5.8 prevent, detect or prosecute fraud and other crimes; and 40.5.9 recover and trace debts.
40.6 The Bank and/or Virgin Money may disclose your personal information to:
40.6.1 any person working for the Bank and/or Virgin Money;
40.6.2 if you arrange insurance through us, Virgin Money or any other provider of
Virgin Money branded financial services products, that insurer;
40.6.3 any organisation which provides any of the Bank’s and/or Virgin Money’s
products which you hold;
40.6.4 any guarantor of your obligations under this agreement;
40.6.5 any person to whom the Bank and/or Virgin Money transfers any of its rights or obligations under this agreement; and
40.6.6 anyone you authorise the Bank and/or Virgin Money to give personal
information to.
40.7 The Bank and/or Virgin Money may transfer or otherwise authorise the use of any of your personal information to or by any person at any time, to the extent necessary to give effect to this Agreement.
40.8 You agree that you have read and understood this clause relating to the use and disclosure of personal information.
40.9 The Bank and/or Virgin Money may cease to be a party to this Credit Card
Agreement at any time without obtaining your consent afresh and without notice to you. Thereafter the Bank and/or Virgin Money (or any assignee of it) may continue to use your personal information in terms of and in order to give effect to this Agreement, provided that such withdrawal will not affect the Bank’s and/or Virgin Money’s rights hereunder to use your personal information on the terms of this Agreement.
Looking at the highlighted bits:
That’s how I understand it. Maybe I’m wrong! Read this through and think it through for yourself.
Lesson: The high price of credit includes the loss of protection for your personal identity.
Lesson: Always read the small print! Read it even though it’s hard to read and boring! Read it even though the salesman is in a hurry to get you to sign. Read it BECAUSE they don’t want you to!
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