Beating credit card bankruptcy in Australia

Increasing numbers of people are finding it difficult to manage their finances, including their credit card debt.
Part 9 of Bankruptcy Act introduced in 1997 aimed at keeping people out of bankruptcy.
Debtors arrange to partly repay creditors over time debt agreements are one stop short of declaring total bankruptcy for the increasing number of people who can't pay their credit card debts, personal loans and bills.
A debt agreement under Part 9 of the Bankruptcy Act, allows debtors to strike a deal with their creditors to repay less than the full amount at an agreed weekly rate over a period of time – without any additional interest. It is an option for people with unsecured debts of less than $77,021 and after-tax income below $57,765.
Now big creditors seem to be getting tough and, according to debt agreement administrators, some are insisting on unrealistic returns from insolvent people.
Part 9 agreements were introduced in 1997 following widespread public concern about young people in particular having to file for bankruptcy over consumer debts such as small credit card debts or even mobile phone bills.
Since then an industry of debt agreement administrators has grown up, often relying on heavy marketing and with trading names such as Debt Assist, Debt Relief and Debt Busters.
They specialise in organising agreements and approaching creditors who vote on each proposal. Fox Symes is a market leader in the industry, filing about 300 agreements a month.
"Some of the big lenders have totally unrealistic expectations," says Deborah Southon, director of Fox Symes.
"People are coming through now with up to $78,000 in consumer debts," Ms Southon says. "You can't pay that back in less than five years and probably not at much more than 40¢-50¢ in the dollar."
Recent amendments to the Bankruptcy Act enshrine the principle that an insolvent person's debt agreement proposal must be affordable and therefore sustainable.
Debt agreement administrators say Westpac and St George Bank are among big lenders voting down debt agreements based on the debtor's ability to repay.
The administrators report a noticeably harsher approach from Westpac and St George compared with a generally supportive approach of the Commonwealth Bank and National Australia Bank in particular.
Some say that St George is telling them no less than 65¢ is acceptable, while Westpac is said to be voting down agreements that return less than 70¢ in the dollar, regardless of the circumstances of the debtor.
Penny Doube, a debt agreement administrator based at Tarragindi in Brisbane, says that on average her agreements involve an insolvent debtor repaying about 50¢ in the dollar over three years.
Ms Doube says St George has informed her that its minimum acceptable return is 65¢.
"St George have always been difficult to deal with," Ms Doube says. "They are not fond of Part 9s."
Administrators typically negotiate agreements that return between 40¢ and 80¢ in the dollar over three to five years. For that, they charge an upfront fee that usually ranges between $600 and $1500 and an ongoing commission.
Ms Southon says each agreement has to ensure that the rent or mortgage is paid, plus provide for utilities, food, essentials, children and the occasional medical visit.
Under the new voting rules, big creditors have increased power and cannot be easily outvoted.
"If St George is your majority creditor, then it is 'shut the gate and file now for bankruptcy', because they are not going to agree to anything," says one debt agreement administrator.
Melbourne debt agreement administrator Melissa Treherne says she is being sandwiched by tough creditors and the new rules, which require her to certify a debtor can afford repayments.
"The new rules are good, they have really cleaned things up but some of the creditors are just not looking at the budget of these people," says Ms Treherne.
"They say they have a new rule, nothing under 55¢ for example, and they won't be flexible about time or rate of return."
A Westpac spokesman says 70¢ "is one of its highest repayment guidelines" and it does apply lower proportions on a case-by-case basis.
A spokeswoman for St George Bank says the bank assesses each proposal individually.
"Most importantly, customers' specific circumstances are taken into consideration, and the final decision is not solely based on the return to the bank."
Digby Ross, the Queensland insolvency registrar, says the system requires goodwill by all parties in the industry if it is to succeed, including the big creditors.
"The major creditors have generally been very supportive, right through (the reform process)," said Mr Ross.
"Yes, definitely, it needs goodwill by creditors to succeed and the contact we've had has been positive." Source: Sunday Mail

How to send your Australian Banks Broke

As the ANZ folded last week to pressure on penalty fees, it brings up a question. How dependent are Australia's banks on fees and charges, and how long could they avoid going under if they could no longer charge these fees, and up them at will?

Have you been caught in the ANZ money trap?

I was an angry victim of ANZ's penalty fees just last Christmas.

I have been caught several times with a $40 penalty fee from ANZ. Often these fees were subtracted on the same day that new funds hit my account, and on some of these occasions I believe that the bank had these funds for several days before declaring them. A double ripoff you might say.

But when on Holidays last Christmas I overdrew my account on a EFTPOS card by less than three hundred dollars.

The ANZ charged me over $40.00 for each time I made a draw. The first charge was on an overdraw of less than $10!

This overdrawn amount included the $120 or so "Honour fees". This meant that they charged me nearly 100% interest for a few days! The mind boggles at the actual interest charged on a per annum basis, but it would have been in the Tens of thousands percent interest annualised. As you can imagine I was not well pleased.

How I struck back at the ANZ.

When I rang the bank I pointed out this practice as wrong and I believed unlawful.

The bank officer reminded me that I had "Signed a contract" with the terms and conditions, and that I was stuck with the charges, and that it was therefore legal.

I then pointed out that any contract had to be fair and reasonable, and this obviously was neither, and therefore where I had agreed with the terms and conditions or not, it was unlawful, as it did not meet this implied condition.

I pointed out that they were entitled to charge an default interest in the order of 4% per annum, which is fair and reasonable, and that this would amount to only a few cents. Their charges i said amounted to several thousand percent per annum, and this was I believed predatory interest.

I also pointed out that I had signed nothing. I was given a booklet with the terms and conditions in then, after I signed up for a bank account, and that these charges were not clearly explained to me.

I also pointed out that I was under the impression, and had asked the bank not to allow any overdrawn amount, and because they did, it was their fault not mine, and that had a duty to me to inform me that the amount would be overdrawn and incur penalty rates if I proceeded, and this did not happen. As I had several bank accounts with clear funds in them I could have used another card.

After initially arguing with me they quickly capitulated under the weight of seeming legal argument. I received a reversal of all three honour fees.

One hundred and twenty dollars tax free for five minutes on the phone, I feel was a good investment of time.

In a move that will cost it about $140 million a year, the ANZ abolished 27 fees on personal accounts and cut other account, credit card and loan fees.

I must not have been the only person to complain, and obviously the ANZ was not the only bank to charge these fees.

But I kind of like to think that I was part of the momentum that caused this charge of heart by the ANZ.

If you were one of the ANZ customers who complained as well, thank you. We did a good thing, and saved millions from a nasty surprise.

So will the banks really go broke if they did not charge fees. Of course not. They make billions a years. But they did lose a little icing off the cake.

The ANZ bank and in fact all Australian banks are great services that we cannot live without. They are full of honest and good people. But if you let them they will try it on. Don't let them even think they can with your account.

Plus, all fees will be abolished for accounts of customers on government benefits who have an Access Basic account. If that's you, tell your bank today, and save even more.

Author: Rick Adlam Mr Mortgage

Credit Cards: CommBank launches the first prepaid travel card

Commonwealth Bank last week launched the first multiple currency prepaid travel card.
AUstralia's Commonwealth Bank, in conjunction with MasterCard, launched the Travel Money Card last week, the first prepaid travel card that enables travellers to lock in the exchange rate of up to six prominent currencies on one card, providing anyone who travels with a highly convenient, cost effective and secure way of spending and accessing money overseas.
Available at any Commonwealth Bank branch in Australia, the Travel Money Card is accepted at more than 28 million locations worldwide, including more than one million ATMs, wherever MasterCard is accepted.
Commonwealth Bank Executive General Manager, Retail Products, Mr Michael Cant, said the card would change the way people transact while travelling.
"We are committed to offering products and services that make banking easy for our customers. The Travel Money Card is cost effective, accessible throughout the world and has the flexibility to load and transfer between multiple currencies, which has never been seen before," Mr Cant said.
"The Travel Money Card can be loaded with US dollars, British pounds, Euros, Australian, New Zealand and Canadian dollars so people don't have the hassle of changing money at their destination and can better manage their spending given the card is prepaid and the currency locked in.
"This is a great option for anyone who travels, from backpackers, business and seasoned travellers, or parents preparing their children for their first travel experience," He said.
Mr Eddie Grobler, executive vice president, MasterCard Australasia said that the Travel Money Card provides a global payment solution while travelling.
"MasterCard prides itself on offering its customers convenience and peace of mind when it comes to travelling internationally, and that benefit is now extended to Commonwealth Bank Travel Money Card customers.
"A world first for MasterCard, travellers can now access multiple currencies on the single card and know the card will be accepted across MasterCard's vast global network," Mr Grobler said.
The Travel Money Card enables people to avoid fluctuating exchange rates, international transaction fees and keep track of their spending with 24/7 phone and online support and via SMS alerts. The card attracts a flat ATM withdrawal fee. There is no fee when using the card in-store, online or over the phone, at Point of Sale (POS) merchants, and transferring between currencies on the card does not attract a fee.
Other features of Commonwealth Bank's Travel Money Card include:
*Customers can load their preferred value up to AUD$25,000 or foreign currency equivalent
* Valid for up to three years and reloadable online via BPAY, over the phone, or in any Commonwealth Bank branch in Australia
* PIN protected and signature enabled
* Back-up card provided in case card is lost or stolen. The card is not linked to a personal bank account
* Flat purchase fee of AUD$15.00
* ATM withdrawal fee of AUD$3.50 or foreign currency equivalent
* Users can keep track of their spending from anywhere in the world with support online, over the phone and via SMS alerts
* Those purchasing the card do not have to be an existing Commonwealth Bank customer.
Story from Rick Adlam Mr Mortgage, supplied by the CBA

Credit card cash advances and EFTPOS use rise in Australia

Credit card transactions, climbed nearly 10 per cent in March, according to the Reserve Bank of Australia (RBA).
Australians spent $18.775 billion on their credit and charge cards in May, up from $17.130 billion the previous month and the second straight monthly increase.
The good news is that the increase in spending was matched by increased repayments, the RBA's says.
Credit-card repayments rose 17.5 per cent in March to $19.720 billion - the highest level since December.
Australians are paying out their credit cards
Total credit and charge-card balances outstanding fell by 1.0 per cent to $44.358 billion, from $44.799 billion in February.
Balances accruing interest rose slightly to $32.689 billion in March, from $32.651 billion the previous month.
By value, credit and charge card purchases increased 9.7 per cent to $17.741 billion in March, from $16.167 billion in February.
A disturbing trend is that cash advances on credit and charge cards increased by 7.4 per cent to $1.034 billion in March, from $963 million in February.
The number of cash advances on credit and charge cards rose by 6.8 per cent in the month.
The number of credit and charge accounts increased by 11,000 in March, while the number of purchases using credit cards rose by 13.3 per cent.
Total credit and charge card balances outstanding rose by 4.3 per cent over the past 12 months, compared with an average of 12.6 per cent over the preceding five years.
Total credit card repayments rose by 11.6 per cent over the past 12 months, compared with an average of 9.2 per cent over the preceding five years.
Total EFTPOS purchases rose to 161.998 million worth $11.213 billion in March, compared with 146.722 million worth $9.912 billion in the previous month.
The value of EFTPOS purchases rose by 18.7 per cent over the past 12 months, compared with an average of 12.3 per cent over the preceding five years.

Credit card chargebacks may save duped Kleenmaid customers

A little-known credit card benefit offers consumers protection from financial loss.
The business failure of Kleenmaid has left 4500 customers who have placed deposits on $27 million for goods not delivered may get some relief, if they act quickly. You have only a 75 day window from the transaction to make a claim. Eftpos users are also protected.
It appears that Kleenmaid were trading whilst insolvent, not that this seems to worry companies these days.
But here's the good news. Any customer who paid using a credit card [or debit card ]can use their card issuer's chargeback facility to get a full refund. I knew having a credit card had to be useful for something, and I have used this fact myself when buying online and not getting what I paid for.
Chargeback covers services or goods that have been paid for but not supplied.
If it happens you must notify your card issuer, which will investigate the case.
When it is satisfied you are entitled to reverse the transaction, it will credit your account. Because the bank has to look into the matter, it can take a couple of weeks to get the money back. In the case of Kleenmaid there is not much to look into.
The card issuer will then chase the merchant's bank (called the acquiring bank, in payment system jargon) to recover that money. In the card-payment world, the acquiring bank stands behind its merchant customer and has to make good when the sale of goods or services already paid for does not proceed.
Card companies including Visa, Amex and Mastercard were also reported saying customers should be able to get their money back.
Any consumer whose transaction card carries a MasterCard or Visa logo has access to the scheme debit system as well as to Eftpos.
It gets tricky because access to the two systems is through the same card and the same point of sale terminal.
If you press "credit" when you make a payment you are using scheme debit; if you press "savings" or "cheque" you are using Eftpos. Consumers who use the scheme debit system get the same protection as users of MasterCard and Visa credit cards, including chargebacks.
As we said earlier, it's important to notify the card issuer if a chargeback is required quickly. In most cases customers have 75 days, after which the issuer will not reverse the transaction.
Chargebacks are not just for reversing transactions where the goods or services are not supplied. They are also used to correct duplicate billing, to fix a bank processing error or to deal with fraud in cases where customers did not authorise a purchase on their card.
So lodge your claim and good luck!

Debt relief' made easy for credit card users as more middle class earners declare bankruptcy

Middle class and high income earners are increasingly taking advantage of cheap and easy insolvencies to escape credit card debt and go bankrupt.
Australia is experiencing a boom in insolvency activity and Victoria is the epicentre of the debt crisis. In the three months to March 31 this year the number of consumer debt agreements entered into skyrocketed up by almost 40 per cent, compared with the same period last year. Bankruptcies were also up 16 per cent, with the vast majority of those being non-business related. Personal insolvency agreements, which are generally undertaken by higher income earners who cannot repay consumer debts, jumped up by more than 50 per cent off a low base. The Insolvency and Trustee Service Australia reports that total insolvency activity was up 18 per cent across the nation in the March quarter. But the Victorian statistics are particularly alarming with total insolvency activity up more than 22 per cent. Only Tasmania showed more growth than Victoria in the numbers of people who cannot repay their debts. Debt counsellors say bankruptcy is a relatively cheap and easy option for people who have lost their job and cannot repay their debts."Bankruptcy can be a pretty cheap option if there are no real assets and no capacity to pay," says John Beecroft, an insolvency specialist in South Yarra."We do the paperwork and send it off to the Insolvency and Trustee Service where it is basically a paper entry."
Digby Ross, the official receiver at ITSA, agrees that bankruptcy can be a cheap and easy option for debtors. "It is a fairly straightforward process," says Mr Ross."They have to prepare a one-page petition and a statement of affairs covering their creditors, any property they have, and their personal details."That is filed with us and when it is accepted the person is bankrupt.
There are no court appearances required."A bankrupt person is generally denied credit for three years. A permanent record of the bankruptcy is placed on the National Personal Insolvency Index, an electronic public register. John Beecroft from debt assist says there has been a noticeable change in the type of people asking for assistance in the past few months."When rates and fuel prices were high we were seeing lots of people from the outer suburbs, now we are seeing more from middle class suburbs and above. "People who have used their credit cards to buy shares and had a margin call is pretty common -- or property investments that have gone wrong," said Mr Beecroft. Bankruptcy is a common option for people losing their jobs, he says.

Credit Card love affair wanes for Aussies

Australians are reducing their debts for the first time since the last recession, but questions are being raised about whether it is voluntary or enforced by lenders imposing stricter conditions.
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."

Westpac bank passes on rate reduction to thier credit card customers

Australia's first bank was the first bank to pass on the Reserve Bank's 100 basis point interest rate cut to its mortgage customers.
But the real suprise was that Westpac wrer also the first bank to reduce the credit card interest by the full one per cent interest rate also when it announced it will also reduce its 55-day credit card rate by 100 basis points.
The nation's other big banks are yet to announce reductions in either home loan rates or credit card rates, or loans rates to small business, after the Reserve Bank's announcement at 2.30pm (AEDT).

Credit is off the boil in credit cards to business investment

AUstralian consumers and businesses are reducing their debts for the first time since the last recession, but questions are being raised about whether it is voluntary or enforced by lenders imposing stricter conditions.
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Other figures released yesterday by the banking watchdog, the Australian Prudential Regulation Authority, and analysed by CommSec showed banks with foreign parent companies such as HSBC, Barclays and ING reduced loans and advances to Australian firms and households in December. All of the big Australian banks, excluding NAB, increased theirs.
The chief economist at Morgan Stanley, Gerard Minack, said the figures showed the credit crunch was beginning to be felt domestically. "More to the point, it will likely get significantly worse. Reduced credit flows is part of the reason I expect a severe recession in Australia.
In particular, tight credit points to a major fall in business investment over the next 18 months."
The credit figures are another sign of a slowing economy, which is expected to convince the Reserve to opt for a 1percentage point interest rate cut at its first meeting of the year next Tuesday.
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."

Credit Card transaction fall as buyers tighten their belts

Australians are turning their backs on credit, gripped by the fear of losing their job as the economic outlook turns increasingly grim.
More economists now believe a recession is unavoidable, if the country hasn't already entered one for the first time since the early 1990s.
Technically, a recession is defined as two consecutive quarters of negative economic growth. Federal Treasurer Wayne Swan won't be drawn on whether Australia will suffer that fate. "I don't speculate about the outcome of the figures," Mr Swan said on Friday. "It's a global recession and we're not immune from the fallout ... It's got much, much worse than anybody could ever have imagined."
The world's largest bank, JP Morgan, has further downgraded its Australian growth forecast, and expects the economy to contract by 0.5 per cent in 2009, a marked change from its previous estimate for a modest 0.2 per cent expansion. "Deteriorating conditions offshore and the worsening credit crunch point to a deeper Australian recession than previously forecast," JP Morgan's chief economist in Australia, Stephen Walters, said. "Increased anxiety about job security will be a heavy burden for consumers in 2009."
New data released on Friday shows that demand for credit recorded its first monthly fall since the 1991-92 recession. Total credit fell 0.3 per cent in December, while the annual rate of 6.7 per cent was the slowest pace since 1994.
Economists had expected a 0.5 per cent increase in the month. "There should now be nothing in the way of the RBA (Reserve Bank of Australia) delivering a large interest rate cut next Tuesday and signalling a desire to do more of the same at future meetings," TD Securities senior strategist Joshua Williamson said.
Financial markets are pricing in the risk of the RBA cutting its official cash rate by a further 100 basis points when its board meets on Tuesday, it's first meeting this year. This would take the cash rate to 3.25 per cent, a 45-year low. The markets are fully pricing a 2.0 per cent cash rate by mid-year. A breakdown of the RBA's credit data was even more dire.
Personal credit - outside of home loans - sunk a further 1.1 per cent in December and now stands 5.2 per cent lower than a year earlier. This is despite the central bank's 300 basis points worth of easing in the last four months of 2008. Total housing credit grew by a mere 0.4 per cent to an annual rate of 7.6 per cent. "This was despite the increase in affordability from lower official interest rates and the increase in the First Home Owners Grant in the month," Mr Williamson said. The government doubled the grant to $14,000 until June this year for existing home purchases, and to $21,000 for newly built homes, as part of last year's $10.4 billion economic stimulus package.
Worse still, business credit also fell for the first time in almost five years, down 1.1 per cent in December to an annual rate of 8.0 per cent. "The fall in business credit does suggest that the impending slowdown in business investment is occurring earlier than we thought," ANZ senior economist Katie Dean said.
Business investment has been a major plank for the economy in recent years, particularly in the resources sector as profits from China's demand were sunk back into companies' infrastructure.

Preventing those after Christmas credit card blues

As we get ready to start work in the new year, you may be suffering from credit cards blues as the thought of those bills that are about to hit your letterbox start to filter into your mind.
The easy way is not overspending, but I guess that that advice is a little late.
So lets have a look at a few suggestions for managing the debts that have become a reality for you.
The first thing you need to do know how bid your debts are.
Once you have this picture, maybe you can do a card swap. NAB and other lenders are offering interest free transfers right now.
Switching to this arrangement and then committing to debt reduction within the interest free period might save your bacon.
By pay off this debt over say the next six months or 90 or however long the grace period will put you in control.
Even if you don't switch your bank credit cards, make a habit of paying the whole debt to zero in the normal interest free period.
Never just pay the minimums. This is a suckers path to eternal debt.
Please remember that Christmas is a one day event. It is not worth spending six months of your surplus income on and then paying your credit card debt off over the following year.

Greedy banks raise credit card rates as official cash rate falls

Australian banks are accused of being greedy and taking advantage of the financial crisis and the Rudd Government' s shop message, as they slide up the credit card interest rate by up to 2% as official cash rate falls by a similar amount.

Research has revealed at least five card providers increased their interest rates in the past three months, even though the RBA has slashed the cash rate by 2 per cent since September.
According to financial data company Infochoice, GE Money and Wizard Home Loans had both increased credit card rates by 2 per cent or more since September, when the RBA began its series of rate cuts.
Bank of Queensland, Citigroup and Suncorp had also increased rates on some cards by up to 0.84 per cent.
Crucially, not a single credit card provider passed on the entire two percentage points of official cash-rate cuts announced since September.
Commentators said banks should be put under more pressure to ensure that interest-rate cuts are applied across the range of financial products, so the economy gets as much stimulus as possible.
So far the Federal Government has given away $10.4 billion in a massive financial giveaway, and the RBA has cut rates aggressively, yet part of the benefit of these measures is being wiped out by banks, which are keeping the savings for themselves.
"By not passing on the rate cuts, card companies are doing nothing to alleviate the debt burdens on Australian households so are limiting the effectiveness of monetary policy,'' TD Securities senior analyst Josh Williamson said.
"It could be banks are robbing Peter to pay Paul - using money from credit cards to help subsidise cuts to their mortgage rates.''
With the average credit card rate at just under 20 per cent, borrowers paying over the odds should switch as soon as possible - preferably to a zero per cent deal which will help them pay off the capital quickly.