More Fiddles That Fleece Us!

Our hugely popular series on everyday rip-offs, stings and swindles continues with another six tricks to dodge.

In case you haven't been following this series on the everyday retail and financial rip-offs which rile our readers, here are my previous articles: More Rip-Offs, Scams And Swindles and Ten More Everyday Swindles and Six More Swindles to Avoid. So far, I've revealed 26 tricks that deprive us of our hard-earned cash. Here are another six to add to our list:

1.    Chat and dating services

One evening last week, I was watching some minor digital-TV channel. During the advertising break, I counted six ads in a row for chat and dating services. All promised the opportunity to contact local people of the opposite sex by text message, at something like £1.50 a time.

I strongly suspect that many of these ‘local' young people will, in fact, be workers who are employed by the service provider to send bogus messages to customers. Indeed, the whole text-dating industry smells like an enormous con to me.

2.    Credit-card cheques

Yet again, credit-card add-ons appear in this series. The key problem with credit-card cheques is that they aren't treated as retail transactions. Thus, almost all card issuers charge a ‘processing' fee, typically 2% to 3% of the value of each cheque, with a minimum charge of, say, £25.

Some credit-card cheques do charge low rates of interest (5.9% APR seems to be a favourite among the firms with which I deal). However, at the sharp end of the market, the interest rates on credit-card cheques can equal, or even exceed, those charged on retail transactions. So, before writing one, be sure to check the small print for the APR, handling fee and the length of time that any low-rate offer lasts.

3.    Loan insurance

Although I roasted payment protection insurance (PPI) in an earlier article, I think it's well worth demonstrating just how big this rip-off is in the personal-loan arena. Let's say that you're looking for an unsecured personal loan of £10,000 over five years. Naturally, like a good Fool, you shop around to compare repayments across a wide range of loans.

The shock comes when you find out how amazingly expensive personal loan protection (PLP) is. This insurance protects you against death, accident, sickness and unemployment, which may appear attractive to some borrowers. Alas, it is massively overpriced, as the following table of low-cost loans shows:

Source: Moneyfacts

As you can see, Direct Line and RBS (both part of the RBS Group), charge a disgraceful 26% for PLP. Thus, their protection adds more than a quarter to the cost of a protected loan, which is nothing short of daylight robbery!

4.    Negative payment hierarchies

Let's assume that you have a debt of £1,000 on your credit card, on which you pay interest at, say, 18% APR. In addition, you have a transferred balance of £750 on which you pay 0% interest for a year. You then make a payment of £250. What happens to this payment?

Most people wrongly assume that this £250 will be deducted from the debt with the higher interest rate, i.e. 18% APR in this example. In reality, 99% of the time, monthly repayments are deducted from the most expensive interest-bearing debt, leaving borrowers out of pocket. This trick is known as a ‘negative payment hierarchy' and you can learn more about it in 99% Of Credit Cards Use This Dire Trick.

5.    Store cards

Back in the mid-Nineties (when I worked on the Dark Side of retail financial services), I began referring to store cards as ‘the Devil's debt'. These days, I call them ‘the crack cocaine of credit', because they are so easy to acquire but so painful to give up!

So, what's wrong with store cards? Surely they offer a range of benefits and discounts which make them attractive to use? While this may be true, store cards are only suited to those people who spend less than they earn and are always in a position to pay off their entire balance every month. Otherwise, store-card users stare down the barrel of the highest interest rates and most expensive PPI in the UK. I exposed the store-card horrors in Mayday For Store Cards.

6.    Telegraphic transfers

If you want to transfer money instantly between accounts with different banks, then you'll pay a fee for the privilege. These same-day transfers are known as telegraphic transfers (TTs), and they are administered via the Clearing House Automated Payments System (CHAPS).

Alas, many banks (notably mortgage lenders and personal-loan providers) charge high fees for these transfers. You can expect to pay between £20 and £75 for a TT, depending on which bank you use. As a former banker, I know that the true cost of a TT is measured in pence, not pounds, which makes these transfers yet another candidate for our Hall of Shame. Personally, I think that the "H" in CHAPS should be replaced by an "R"!

Lastly, this series isn't over yet, as I have more rip-offs up my sleeve. Bye for now!

More: Fed up with fiddles? Then find a better credit card, current account, mortgage and savings account today!