Thursday, December 21, 2006

The Farepak Debacle III

The Farepak debacle is a story that simply won't go away, especially in the run up to Christmas.

The rival Christmas savings specialist Park Group Plc, which now that Farepak has collapsed is the UK's largest Christmas savings club, is claiming that they could have saved Farepak from collapse.

Managing Director, Chris Houghton, is quoted as saying:

"We made four (approaches) in 18 months. All at different times with different prices. We felt we'd made full offers for the business, and for some reason they did not want to take it."


"We were bending over backwards to try to avoid the situation we've got now, but it ended up going into administration before we were able to get it done."

However, this claim is disputed; a spokesman for HBOS, bankers to Farepak's parent company European Home Retail (EHR) Plc, are claiming that EHR received no serious offers for the business.


"The truth is that no realistic, viable deal was ever tabled.

If it had, EHR is a listed company it would have to be a matter of public record

All very well, but none of this helps the victims of Farepak's collapse.

Wednesday, December 20, 2006

The Farepak Debacle II

A very small measure of good news has been delivered to the hapless victims of the Farepak collapse. Roy Martin QC, one of Scotland's leading lawyers, is to represent Farepak victims for free in their fight to recover their money.

Roy Martin QC is dean of the Faculty of Advocates, and has agreed to waive his £5K per day fee to take up the case of the Farepak victims.

He will meet with campaigner Louise McDade, of the Farepak Victims Committee, to see if Farepak's victims have any grounds for legal action.

Mr Martin will examine the case on behalf of the 150,000 victims across the UK who lost £45M when Farepak's parent company, European Home Retail, went bust in October.

In other news The Office of Fair Trading and the Financial Services Authority are considering whether to introduce new regulations for the industry after the Farepak collapse, I would venture to suggest that this seems to be a tad late for the Farepak victims.

Meanwhile Park Group, the largest Christmas savings club in the UK, has unveiled measures to ring-fence £210M of savers' cash; in an attempt to maintain confidence following the collapse of Farepak (which was in fact a larger company).

Tuesday, December 19, 2006

The Farepak Debacle

The hapless victims of the Farepak collapse have had their hopes dashed of a pre Christmas settlement of the monies owed to them. Mr Justice Mann, a High Court judge, said yesterday that there were too many issues that were not fully resolved for him to be able to agree to a distribution of about £1M.

The £1M being the figure suggested by the administrators of the collapsed saving club company.

Mr Justice Mann said:

"It will doubtless seem to some that the points which currently seem to stand in the way . . . are technical and unmeritorious... They are real points, I fear, and they arise out of the way that this company conducted its business. They must be disposed of properly and on the basis of law, not purely on the basis of sympathy and Christmas."

The contentious point is the fact that money was paid into Farepak, between October 11 and October 13. The directors had internally decided to cease trading on 11 October. However, the company was not formally put into administration until October 13.

To add to the complexity of the case is the fact that people paid monies to around 26,000 agents, who would in turn would pass the money to the company at a later date.

Overall it is estimated that Farepak customers, many of whom are low income families, have lost around £40M.

In other Farepak news, PricewaterhouseCoopers have decided to go ahead with creditors' meetings for EHR (the parent company of Farepak) despite concerns that they will be swamped by Farepak customers.

PwC's meetings are not expected before Christmas.

As if to add to the misery of the Farepak customers, it is also reported that loan sharks are now targeting them; offering them financially suicidal loans.

Monday, December 18, 2006

Avoidance vs Evasion

Gordon Brown and the Labour government are allowing their natural prejudice against those that earn above the norm to override one of the fundamental principles of taxation. Namely that tax evasion is illegal, but tax avoidance is perfectly acceptable.

Simply put, tax evasion is where an individual or company does not declare/willfully understates income with the express intention of defrauding the tax collector. Tax avoidance is where an individual or company legitimately uses the tax rules to reduce their tax burden, eg by making the most of their personal allowances.

The tax lobby group, the Tax Justice Network, has noted that 41% of all new tax legislation is targeted at blocking tax avoidance. The group has issued a report that looks at the purpose for enacting every section and schedule of all 1503 pages of tax legislation in the Finance Acts, passed in the period 2004 to 2006.

It notes that only 48 pages deal with routine issues such as tax rates, 841 were the result of government-driven initiatives and 614 were anti-avoidance measures.

An absurd waste to time and resources, which of course spawns an entire industry tasked with outhinking the tax collector.

Unfortunately the Tax Justice Network misses the point of their research, and lays the blame on the hapless taxpayers,

Richard Lupson-Darnell, who conducted the research, said:

"The tax avoidance industry and tax advisers in general are constantly complaining about the volume of legislation they have to contend with. However, this research shows that they and their clients have to take a lot of the responsibility themselves."

Mr Lupson-Darbnell is wrong, all Chancellor Brown has to do the clamp down on this industry (and the resources wasted by "aggressive avoidance") is to simplify the tax system and to publicly state and accept that tax avoidance is perfectly legitimate.

The trouble is that Brown and the Labour party are saddled with ideological baggage that makes this all but impossible.

Friday, December 15, 2006

It's The Money Stupid

Buried beneath the media hype over the report into Princess Diana's death, was news that the Serious Fraud Office (SFO) has decided to drop its investigation into BAE Systems over the Al-Yamamah deal.

The government intervened in this long running investigation, and proclaimed that "national and international security" took precedence.

The probe, which focused on alleged slush funds for senior Saudis, had caused a major diplomatic row and threatened billions of pounds worth of British arms trade with Saudi Arabia.

The SFO said:

"This decision has been taken following representations that have been made both to the attorney general and the director of the SFO concerning the need to safeguard national and international security

It has been necessary to balance the need to maintain the rule of law against the wider public interest. No weight has been given to commercial interests or to the national economic interest

Despite further assurances that this was a "national security matter" from the Prime Minister, who had earlier been interviewed by police in the cash for honours scandal (the first serving prime minister to ever be interviewed by police), cynics are of the view that economic considerations played a very large part in the ditching of this investigation.

Britain's reputation for financial probity is easy to squander, but will be very hard to earn back.

FSA Let Lenders Off The Hook

The Financial Services Authority (FSA) has given interest only mortgage lenders an early Christmas present this year, by concluding that consumers who take out these products generally have a reasonable understanding of the risks involved.

Given the level of indebtedness of the average British household, I wonder how realistic this view really is?

However, the FSA attempted to show some muscle by noting (or rather expressing a wish) that lenders should continue to develop and implement best practice strategies to ensure customers are sold the mortgage that is best for them, and that they remain aware of the risks.

Just like they did with endowment mortgages?

Interest only mortgages are now very popular in the UK. This is mainly due to the fact that people want to avoid paying off their debts, and that the housing market is now at an all time high.

By the end of Q2 2006 interest only mortgages accounted for 25% of the total mortgage market.

Unfortunately many borrowers take them out without specifying a repayment vehicle, the lenders choose to remain in blissful ignorance as to how the debt will be rapid.


Given that the average mortgage is for 25-30 years or more, many lenders will be secure in the knowledge that if disaster strikes at some unspecified date in the future, they won't be around to pick up the pieces.

The FSA last year put interest only mortgages at the top of its list of "emerging retail risks." However, its latest announcement indicates that it has backtracked.

That being said, the FSA note that 10% of consumers taking out interest only mortgages have either no idea or at best only a rough idea of how they plan to repay the loan they have taken out.

I believe that this is a recipe for disaster, akin to the endowment mis-selling scandal.

Thursday, December 14, 2006

Bonus Time

In the run up to Christmas, many people's credit cards are maxed out as they scrape their resources together to fund the feast of indulgence and revelry, spare a thought for the poor souls in the Square Mile.

It is now bonus season, where the select few can reap mind boggling sums on top of their annual salaries.

The Goldman Sachs bonus is reported to be an average of over £300K for every employee. This is nothing compared to some, figures in excess of £1M are paid to the real high flyers in the City.

The annual bonus round this year is expected to yield a bumper harvest. This in turn is expected to further stoke the housing bubble of London's over-stretched property market.

The question is, are these bonuses sustainable or justified?

Wednesday, December 13, 2006

Bank Robbery

Those of you who are fed up with being on the receiving end of extortionate penalty charges levied by banks and credit card companies, may be interested in the following.

In 2005 the top six High Street banks in the UK made an estimated £4.5BN from penalty charges. These charges are imposed by the banks when the account holder actions unauthorised overdrafts, bounced cheques and clears Direct Debits when there are insufficient funds in the account.

It seems that, according to Stephen Hone, these charges are in fact illegal. He argues that, under the Unfair Terms in Consumer Contracts Regulations (1999), all penalty charges have to truly reflect the cost of administering them.

They are not permitted to be a profit making enterprise for any business. He believes if a penalty charge is higher than its administrative cost, it is illegal.

Mr Hone managed to successfully claim back £840 in bank charges from Abbey. The BBC then asked a few other people to try the same. To see how they did, visit the BBC site.

The BBC have even set up a set by step guide, with pro forma letters, helping people to claim their charges back. To view the guide, visit Bank Robbers.

However, I would caution against undue and exuberant optimism, the banks will not take a mass "reclaim of charges" lying down. They are already arguing that the "penalties" are not "penalties", but "service charges"; this would, in the banks' opinion, exempt them from the Unfair Terms in Consumer Contracts Regulations.

I would also note that the banks may decide to become even more disagreeable, and simply stop honouring cheques and direct debits that push people into the red.

Remember, the banks are here to make money; they are not a charity.

Tuesday, December 12, 2006

Extra Endowment Compensation Won

The Financial Services Authority (FSA) claims that due to its pressure, life assurance companies and others involved in the most notorious financial scandal in recent British history, have been forced to pay compensation to over 100,000 customers whose endowment mis-selling complaints had previously been rejected.

The FSA claims that due to its pressure, 75% of the rejected claims have so far been decided in favour of the customers.

This represents around an extra £120m in compensation.

Vernon Everitt from the FSA gave warning to the financial services industry that the FSA would be keeping a very close eye on how the firms were operating.


"It is encouraging that firms have improved the speed and quality of how they handle complaints.

News of a potential shortfall is a major worry for consumers and firms owe it to them to deal with their complaints quickly and fairly.

They need to pay particular attention to helping people deal with shortfalls when policies mature

Around 1.8 million people have received compensation for mis-sold underperforming useless endowment products, totalling £2.7BN.

The FSA should be wary of indulging in too much self congratulations. Millions of people are still facing a shortfall on their endowment policy, with little idea of how they are going to cover their mortgage debt.

The life assurance industry could put a stop to this chaos now, by agreeing to underwrite these useless underperforming products. Instead they are more than happy to pass the buck to others.


Monday, December 11, 2006

Pru Rejects Egg Bid

Prudential has rejected the bid approach from Citigroup for its online bank, Egg.

Citigroup had offered £950M for Egg. However, the Prudential said that it remains committed to integrating Egg with the rest of its operations.

The Prudential (Pru) had tried before to sell Egg. However, that attempt failed and Jonathan Bloomer CEO was ousted for that failure.

Egg has made losses in the first 6 months of 2006 of £40M, and it is expected to report a loss in the second 6 months as well.

Prudential said:

"It was clear that it was speculative and conditional, and not in our shareholders' interests to pursue further. Our focus remains on our continuing review of the UK business and completing the integration of Egg."

We shall see.

Friday, December 08, 2006

Brown Screws Pensioners Again

Gordon Brown, in his pre budget report, has dropped a bombshell on tens of thousands of people who had hoped to bequeath part of their pension to their relatives.

Brown now intends to take over 80% of the money inherited from personal pensions for himself.

Needless to say, Chancellor Brown is facing a severe backlash as the pensions and insurance industry counter attack this removal of people's freedom over their pensions.

The tragic irony of this loss of freedom, is that Brown had only introduced it back in April 2006.

This shameful volte face indicates that either Brown is incompetent, or the UK's financial situation is worse than he is letting on.

Fergus Lyons, commercial director at AJ Bell, said:

"Previously you could pass on your pension fund to heirs.

Now you've got to give it to an insurance company or you've got to give it to Gordon Brown. I reckon this will be a major switch-off for future pension savers

The new rules, introduced in April 2006, allowed those who were over 75 to pass on their entire pension fund to their family, subject only to inheritance tax.

Brown has now added a new tax on death of "up to 70%" which will be levied on these funds.

As ever, despite exhorting people to save for old age and to be independent from the state, Brown and the Labour Party do their best to wreck the savings industry and make people reliant on the state.

Thursday, December 07, 2006

Foreign Banks Offer The Best Deals

Analysis prepared by shows that seven foreign banks in the UK market offer savers interest rates of over 5.2%, with a further two offering rates in excess of 4.75%.

Stuart Glendinning, the managing director of the comparison website, said:

"This is a foreign invasion everyone with money to save can welcome.

These new banks offer savers more choice, higher rates and also put pressure on the existing providers to raise their rates. The only losers are the UK banks and building societies

India's ICICI Bank and Landsbanki from Iceland both offer 5.45%.

Yet another example where the British financial services industry has been found to be wanting. The message here is clear, adapt and innovate or die.

Wednesday, December 06, 2006

Financial Institutions Covering Up Fraud

As if the reputation of the British financial services industry was not already bad enough, banks and other financial institutions have found another way to drag their names even deeper through the mud.

It seems that they are deliberately failing to report incidents of online fraud to the police. Ironically they are covering up the incidents of fraud, in the mistaken belief that this will enhance their reputations.

Nothing could be further from the truth.

Metropolitan Police officer, Detective Superintendent Russell Day, told the all-party parliamentary group on identity fraud, that banks were deliberately covering up attacks on their IT systems.

Det Supt Day, who is in the Met's economic and e-crime unit, told MPs that one of the biggest threats was posed by "botnets". Botnets infect domestic pc's, and use them to launch attacks on companies' security systems and send out spam emails.


"Financial institutions are not reporting it [these attacks] to law enforcement [agencies], and there could be two reasons for that. It could be one of consumer confidence, but I think that to be honest it is their lack of confidence in law enforcement to deal with it. And they are right. Because of the global nature of this, it doesn't fit in with our priorities."

Nigel Evans, the Tory MP chairing yesterday's hearing, asked Det Supt Day:

"Are you saying that there is fraud taking place in financial institutions and they don't refer it on to the Met because they are either afraid of their credibility being damaged or because they don't think you can cope with it?"

"Yes", was the answer.

Mr Evans said:

"while we all use this figure of £1.7BN, the real figure could be much, much higher. Institutions, for their own reasons, do not report the crime. It makes it much more difficult to give a proper estimate as to how huge the problem is

I assume the financial institutions lose the money and pass on the bill to customers

It can most certainly be guaranteed that the costs of these crimes are passed on to the hapless consumers, even though the failings are due to the inadequate security measures taken by the banks and the fact that they choose to cover up the problem.

Losses from online banking fraud amounted to £22.5M in the first six months of this year.

The financial services industry will avail themselves nothing, if they continue to cover up the problem. They should get out in front of this thing, come clean with the public about the risks and problems that they face and publicly state how they are going to address the problem.

Failure to do this will further damage their already shoddy reputation, and undermine the public's confidence in e-commerce, on line banking and the financial services industry as a whole.

Tuesday, December 05, 2006

The Ghosts of Christmas's Past

Christmas brings with it many problems, it is a time of year when there is great abundance yet "want" is most keenly felt. The average British consumer tries to get around the feeling of "want", by purchasing food and gifts on credit.

Unfortunately the debts incurred in Christmas's past tend to reappear, like Marley's ghost, in Christmas present.

Research conducted by UK financial comparison service, MoneyExpert, has found that over 4.2 million people are still paying back Christmas credit card debt from 2005. UK payments association Apacs has estimated that £11.4 billion will be spent on credit cards this Christmas.

Sean Gardner, chief executive of, said:

"With more than four million of us still paying for last Christmas it is clear that there is a need for many of us to change our financial habits. Getting into debt is fine as long as you have the means to get out of it."

The modern belief in the immediate satiation of wants should be tempered with an appreciation of the old wisdom, that things are best appreciated if you have to wait and save for them.

Monday, December 04, 2006

FSA is Failing

Which?, the consumer magazine, has issued a damning indictment on the Financial services Authority (FSA) by saying that five years after its inception it is failing to protect consumers.

Which? says that the FSA "must try harder".

Which? roundly condemns the FSA's lack of action to name and shame those who fail to follow advertising rules, or perform poorly in mystery shopping exercises.

Louise Hanson, head of campaigns at Which?, said:

"The FSA has had a busy five years and yet many of their major challenges in the retail financial area have left consumers exposed.

We believe they have not been open and transparent enough in tackling detriment or in robustly challenging the industry

Which? isn't calling for more legislation or regulation: what we need is better regulation and for the FSA to use its existing powers and tools more flexibly and more imaginatively to ensure proper enforcement and an effective deterrent for industry

The FSA states that it is legally prevented from naming and shaming firms, without the matter being dealt with by its formal disciplinary process.

Saturday, December 02, 2006

Happy Birthday FSA

The financial Services Authority (FSA), as it celebrates its 5th birthday, has come under a barrage of criticism.

Roy Leighton, chairman of the Financial Services Practitioner Panel (FSPP), has called for a clear-out of "dead wood" in the FSA.

A report by the FSPP said that overall industry satisfaction levels with the FSA had shown little or no improvement in the past two years.

The report calls for personnel changes, and claims that some of the less senior officials had a box-ticking approach and an unhelpful attitude.

Leighton said:

"There is undoubtedly some dead wood there.

They're not able to make the qualitative decisions [necessary in a principles-based regulatory regime] when they have been used to box-ticking

To add to the FSA's woes, John Gummer MP and chairman of AIFA (the Association of Independent Financial Advisers), also "put the boot in" so to speak.

Gummer was speaking at the annual AIFA dinner on Thursday night. He used his speech to criticise the FSA for unfairly undermining IFAs in a recent press release.

He said that an FSA statement on advertising mortgage promotions in the sub prime sector gave the impression that IFAs mislead the public more than banks or lenders.


"When we investigated, we found that the incidence of failure in large scale operations (banks) was twice as high as it was in IFAs and this was not mentioned in the FSA press release."

Adding that the FSA had given the impression that there was "something wrong with IFAs when their research showed the opposite to be true".

Warming to his theme, Gummer went on to accuse the FSA of failing to meet a legislative requirement to consult industry before setting down new rules or guidelines.

He said that the principles-based regulation was a primary cause of this problem and confusion and shirked fundamental guidelines put down by parliament, that "the regulator must be regulated by proper regulation".

Stephen Bland, director of the FSA's Small Firms Division and Retail Intermediary sector leader, said:

"We of course accept that AIFA will have strong views on subjects close to their members' hearts and that they are perfectly entitled to say them. On this occasion, however, we felt that the comments did not display a full understanding of where the FSA is coming from, which is disappointing given the frequent contact we have with them."

Happy Birthday FSA!

Friday, December 01, 2006

New Rules For Home Credit

The Competition Commission yesterday unveiled a number of measures, designed to increase competition and lower prices in the home credit market. It did not impose price caps on home credit lenders.

The new measures force lenders to share data on their customers' payment records, and require them to publish their prices on a website so that borrowers can make more informed choices.

Home credit lenders, which include Provident Financial PLC and Cattles PLC, will also be obliged to give rebates to customers who repay their loans early.

However, the competition watchdog said that it had no plans to impose a ceiling on the repayment rates that lenders can charge. It argued that a rate cap might make home credit unavailable to the most vulnerable customers.

Competition Commission chairman, Peter Freeman, said:

"These measures are designed to open up the market to greater competition so that customers will get more choice and lower prices."

Provident Financial said that it would "work constructively" with the Commission to implement the new measures.


"Provident Financial is pleased that the CC's own research confirms high levels of satisfaction among customers who find home credit products well suited to their needs."

Damon Gibbons, chair of campaign group Debt On Our Doorstep, said:

"The measures proposed in this report will probably take a further 18 months to impact on the price of credit.

In that time, lenders will have made another £100M in excess profits. Low income borrowers will wonder why it is that the industry isn't being forced to pay that amount as a levy to fund affordable credit provision such as credit unions, or why interest rates aren't being reduced through a cap immediately to ensure they get a fair price.

The financial services industry is much like a balloon filled with water, when it is squeezed by rules and regulations in one direction it produces a "swelling" of new charges and fees in another.