An outraged email from a friend visiting New York arrived this week. He has a Coutts dollar-account Mastercard, taken out before he left so he could have easy access to the local currency during his trip.
He pays $200 a year to have the card, which he thought was expensive but OK. However, looking at his first statement, he’s just noticed that he is charged 2% of the value of his withdrawal every time he takes money out of an ATM.
“I’m horrified,” he says. “It’s disgraceful. What can I do?” It’s not what he wants to hear, but I guess the answer is that he should take more time to read the small print.
Credit-card companies are famous for the many creative ways they find to separate the lazy from their money. A very partial list of these would include annual fees (his being $200), foreign exchange fees, late-payment fees (from which many firms made a killing during the postal strike), offers of overpriced Payment Protection Insurance (another real winner for them, given that it’s verging on the impossible to claim on this) and change of address fees.
This is a good time for my friend to have noticed these horrors. Why? Because times are getting tough for financial firms and a major part of their fight back is to think of new and better ways to rip us off.
Note the 120 fee rises in the industry reported in the last few months (counted by Moneyfacts.co.uk) and the arrival of a few brilliant new wheezes; my current favourite being to reclassify any payments made to gambling companies as cash withdrawals (this means they can charge the 2% ATM fee on all payments).
It’s creative stuff. The same can be said of the way that mortgage lenders have started piling on the fees. The average “arrangement fee” has risen from an average of £495 to nearly £800 and one in seven mortgages comes with a fee of over £2,000.
Northern Rock charges percentage fees on some mortgages. This makes no logical sense whatsoever (although that can, of course, be said of most of its business): at 3.5%, the cost of organising a £500,000 mortgage is £17,500, yet the cost of a £100,000 one is only £3,500. This is despite the fact that both mortgages will involve the same amount of work for the provider (ie, not much).
Over the next few months up to two million mortgage holders are going to find they have to remortgage as the cheap fixed-rate deals of 2005 come to an end. Since then interest rates have risen five times; the credit crunch has started to bite; mortgage fees have nearly doubled and, to add insult to injury, house prices are falling in every region across the country except central London, according to the Royal Institution of Chartered Surveyors.
So what should they do? Shop around – there are still some deals to be had – and then read the small print very carefully.