Egg crackdown on 160,000 customers

Egg annouced it was forced to make an unprecedented move to curb overspending after a review revealed 160,000 customers had a ‘higher than acceptable risk profile’.  The cardholders received letters within days warning them their Egg credit cards will stop working in 35 days’ time.  Those with a higher risk would typically mean people who spend over their credit limit or fail to make minimum repayments.  However, Egg’s actions backfired when hundreds of those affected say they settle their debts every month and incur none of the bank charges which make money for Egg.  But the lender defended the move, saying the ‘risk review’ was carried out after the banking giant Citigroup bought Egg last year and the decision was not prompted by the credit crunch.  The Office of Fair Trading has yet to receive a complaint. But sources indicated an investigation would be launched within days if a sufficient response is received from customers.

How will banks recoup their dented profit margins?

The banks always find various ways to recoup losses through their customers.  When credit card charges had to be reduced from as high as £39 to £12, some responded by tagging on an annual fee, some have already started fining customers who are in credit and other like RBS reduced the interest free period their customers have before payments are due.  And there have been many others setbacks; mortgage exit fees, miss-sold Payment Protection Insurance (PPI), various bank account charges, and now the US sub-prime mortgage crisis.  They have already started by increasing mortgage arrangement fees to as high as 4% of the loan.  The banks are very shrewd in finding various ways to pass the buck!

The debt storm is brewing for 2008

With 1.4 million borrowers coming off their cheap 2-year fixed rate deals in 2008, they would be in for a shock with higher mortgage costs and tightened lending criteria.  Borrowers with poor credit history looking for a new deal would find it even harder;  Lenders are now asking for 25% equity as opposed to 15% before the credit crisis hit the financial markets.  To ensure you get a good deal, first talk to your existing lender so you have something to compare other offers against.  Also be sure to take into account the cost of switching lenders; valuation and solicitor’s fees.  The easiest comparisons are with deals from other lenders that would pay these costs for you or just obviously much lower rate without extended tie in.

Northern Rock kicked out of FTSE 100

In the UK, Northern Rock’s shares (Britain’s fifth largest mortgage bank) have been the worst hit by the credit crunch dropping from £12 early in the year to less the £1.  It will be relgated later this month to the bottom of FTSE 250 index for medium sized companies.  Just narrowly missing the index that tracks small sized companies.

Central banks try to regain control

Five of the world’s leading central banks including the Bank of England plan to inject £54bn of cash loans into the money markets.  They hope this would ease the interbank rates (the rate used by banks to lend each other money) which has remained stubbornly high despite the quarter rate cut last week.  Although some analysts believe this will result in an immediate reduction in the interbank rates (and filtering through to mortgages/loans) others however, warn that it would take time for lender to trust each other again.  Probably not while there are still huge bank losses still to be realised from the subprime crisis for some months to come.  So will this gesture make a difference or has it come too late?  We’ll have to wait and see.