"For every £100 I’m paid, £30 isn’t mine."

Why I confidently predict this recession won't be as 'severe' as the last

I normally say I don’t do predictions, so you may be surprised to see me putting my neck on the line in such a way. Yet I haven’t suddenly bought a crystal ball or grown cahoonas the size of an ox, this is a natural conclusion on the back of the political spin of recession maths…

A recession is strictly defined as two successive quarters of negative growth – in other words, the economy shrinking for half a year. Yesterday it was announced we’d had one quarter down 0.2%, so even though it’s down, unless we get another one – it’s not yet a recession – but the general feeling is it will be.

Yet just think about this definition for second. A ‘recession’ isn’t about how things feel, the perception of economic affairs, it’s about whether things are good or bad. Politicians can rightly say we’re not in recession even when many are feeling the pain.

Look at this table below – I’ve designed  a ridiculously extreme example of how the definition may not reflect the real picture:

The definition of recession also explains why over the last couple of years even though the economy has been teetering, technically we’ve not been in recession. Back in 2008 I confidently predicted that – not out of any prescience, just due to the simple maths (see my Recession will end soon: the joy of maths blog).

Why this recession is unlikely to be as severe as last time

I’ve already seen one headline of "this recession won’t be as bad as 2007/8" and indeed it’s almost certainly accurate, but quite meaningless.

Our economy contracted substantially back then and has never recovered, we’re still in the mire, we’ve just had stagnant or minor growth for a few years. Thus we’re not going to fall much now as there isn’t that far too fall – unless we have catastrophic economic collapse (let’s hope not eh?).

The fact this recession won’t be as steep isn’t the same as saying it won’t be bad. Recession is all about momentum – which is how fast things are moving, and doesn’t factor in the overall economy. 

Take a driving analogy, if you accelerate to 80 mph then slow to 79mph you may’ve slowed down but you’re still going fast.   

Yet with our economy we were travelling at 70mph, in 2007 we slowed to 60mph and aren’t going much faster now, so if we drop to 58mph now, while we haven’t slowed down as much as in the last recession – we’re still going far slower than we were when this all started.

Not everybody is struggling

If you’re reading this as a doom and gloom blog, please don’t. In many ways the message is we’re already in it, so hopefully it won’t get much worse.   

Yet even in a recession you can’t draw too many conclusions on what it means for individuals. I’ve corrected a good few interviewers in recent times who’ve asked me: "everyone is struggling, what should we do?"   

Of course ‘everyone’ isn’t struggling, there are still many with good jobs, getting pay rises, with savings, no debts, and possibly low rate tracker mortgages. You only need to see this How much are you worth? 2012 poll result to see that.

The key to recession is ‘more people than usual are struggling’, with many feeling income squeezes, costs on the up, benefits dropping and worries about job security. It’s crucial to address those issues, but still we must be careful not to start seeing our economy as a blanket of individuals with a homogenised financial situation.

Related links

• Recession proof your finances
• The Eurozone crisis has little impact on you, but a lot on us
• If I were Chancellor…
• "You’ve never had it so good?" True for a few
• "If the economy’s growing, why does it feel so bad?" The joy of maths, part two…

The bank deal that makes 5,000% APR payday loans look cheap

Payday loans at 5,000% APR rightly shock many people. Yet high street banks have a product so expensive many would save by taking a payday loan, even at ridiculously high rates, instead. But as banks needn’t phrase it as an APR, they get to offer this product without the nasty brand damage.

As for what this extortionate charge is – well it’s simple, common and famous. It’s a bank charge for going beyond your pre-agreed overdraft limit.

How expensive are bank charges in comparison?

Clydesdale Bank charges £25 per day for going beyond your limit. I tried to calculate this in Excel as an APR, based on someone getting a £25 charge a day for being £1 over. The resultant interest rate was TOO LARGE FOR EXCEL TO CALCUATE % APR – which means it’s a ‘figure with way more than 300 zeros after it’ percent.  

So I had to take more standard charges like Nationwide’s £15 per item or Lloyds £5-10 per day depending on how overdrawn you are (see the Bank charges comparison guide for more). 

But even here, if you got a charge for being £1 over, it was too large to calculate so I went for the following scenario…

Go £5 over your overdraft at Lloyds and get charged £5. Based on payday loan calculation rules this would be roughly: 7,500,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000% APR.

Or, to put it another way – compare the above costs to borrowing a range of amounts at an APR of 5,000%:

As you can see, in comparison 5,000% APR is cheap.

So should everyone get payday loans to avoid bank charges?

Payday loans are a blight on society. The rates above rely on you only borrowing for a day – in reality that doesn’t happen with payday loans, they’re designed to be had for a week or a month, so you pay an upfront admin hit anyway. 

While some could save by using a payday loan instead of getting hit by bank charges, (though not every time) what’s far better is to avoid the borrowing all together or use a host of other solutions (we’ve a full ‘what to do instead of getting payday loans’ guide coming soon).

Even expensive credit cards, often rightly thought of as bad guys, compared to payday loans or bank charges are relatively cheap. The problem with them though is the easy availability of credit which means the debts can snowball.

Banks have cleverly avoided having to phrase their charges in a nasty way

My real point here is the fact that we don’t have any form of playing field to compare. Payday loans must list themselves as APRs due to regulations – that’s not a particularly sensible system in my view (see the evidence given to the Business Select Committee to explain why) but at least it scares people off. Yet banks get away with levying relatively higher charges without the stigma.  

Just image if Clydesdale had to write ‘Bank Charges APR too high to calculate’, or many others had to write ’7,500,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000% APR’. 

It wouldn’t exactly be good for their brand (and just think of the extra cost of advertising just to fit the figure in).

Are people going beyond their limit just taking cash that isn’t theirs?

This is an old chestnut whenever I talk about bank charges – and it’s nonsense. Banks have three limits within overdrafts:

• The authorised overdraft – ie, no bank charges.
• The unauthorised, paid overdraft – ie, there will be bank charges, but your cheques/DDs don’t bounce.
• The unauthorised, unpaid overdraft – ie, there will be bank charges and your cheques/DDs do bounce.

These are just functions of a bank account – the banks don’t have to have a ‘paid’ overdraft, it was introduced to increase profitability and added over £3 billion a year to their coffers. Of course during the bank charges reclaiming height over a billion was paid back – and still now a few whose charges cause hardship can get some cash back. Yet overall it’s still immensely profitable.

Ps. Nerdy calculation note. Of course the APR calculation assumes that the charge would compound, which it doesn’t with bank charges – so the APR given is a farce. Yet it doesn’t with some payday lenders either – who don’t compound and cap the time – yet they must use the APR calculations that assume they do.

So I’m simply giving banks similar treatment in my calculations. What we need is a sensible clear measure for all – which is what I and many others have lobbied for.)

Related Past Blogs

• Payday loans, the evidence: why we need regulation now…
• Best-buy payday loans – should MSE include them?
• Can you use payday loans to boost your credit rating?
• Fact: borrowing £100 at Wonga’s APR costs more than the US national debt (over $14 trillion) after 7 years!
• Don’t tell MPs I’m against payday loan regulation!
• MP says don’t cap interest rates, cap loan costs
• Should we worry more about 10% interest than 2000% APR loans?

Are you embarrassed to hide your pin code when paying in shops?

The lady in front of me in the supermarket today had the pin code 1910. I know this because I saw her key it in. She did it without any attempt to conceal it from me or anyone else in the queue – she just stood back and blithely punched each number in.

All I would’ve needed to do is grab her card, run out the door, go to a cash machine and bazinga, £400 mine straight away. (Ok, I know it’s unlikely, it’d be a career ruining moment for me, but you get my point).

This isn’t an uncommon occurrence, I’ve lost count of the number of pin numbers I’ve seen (I do usually try and look away, but sometimes it’s too obvious). I think it’s become embarrassing for people to hide their pin codes. 

I know I sometimes feel that it’d be rude to put one hand over the hand putting the code in – you worry it may offend the shop staff or others in the queue by indicating you’re worried they’re dishonest. My own technique is instead to put all my fingers on the keys, so it’s very difficult for anyone to see what I’m pressing (I asked Mrs MSE to look and she couldn’t work it out).

So as I’ve been mulling this over, I thought I’d try and see how you feel.

• Is it embarrassment, or is it just not thinking about it?
• What’s your pin code technique – do you have any tricks that may help others?
• Are you psychologically more likely to take more care at an ATM, rather than in a store (even though the end result would be the same)?

I’d love your answers, please let me know by one of the links below.

Best-buy payday loans?

We’re in the middle of writing our new guide to payday loans (eg Wonga, Quickcash etc.) and I’d like to solicit your views. The key concept is actually to explain all the alternatives you can try before using that type of lending.

So it’ll be a big checklist hopefully providing people with alternative safer routes and options. Then we will have a section on what to watch for and how to make it as safe as possible if you do get a payday loan.

The debate

What we’re currently debating in MSE Towers is whether the guide should include best-buy payday loans (or perhaps least worst is a better view), but there’s a difference of opinion – so we thought we’d ask you.

My view – we should include the best buys

This market is now £1.9billion a year – so there are a huge number of people doing it. No matter what we do, people are going to borrow this way and while I would like hardcore regulation to protect people, it isn’t happening yet.  

Thus it’s a bit like drugs, if people are going to do it, we should ensure they are safe. Here are my reasons:

• It gives us a chance to dissuade. Hopefully our best-buys will get search traction and then we can at least get the counter arguments and warnings in.
• It’s mostly a bad move, but not 100% bad. Most of the time it’s not a good move, but a few times it is. Sadly there are few alternatives to cheap short term borrowing – and there are worse culprits out there. For example, if you could borrow £100 for a week to stop you getting Clydesdale bank’s £35 a transaction bank charge, and repay on time, it’s much cheaper.
  (Interesting isn’t it? We demonise payday lending but not bank charges, which are even worse for some than the 5,000% rates advertised).
• There are big differences between the best and worst. Not all lenders are the same, so helping people choose when it’s right for them is worthwhile.
• Parliament wants this. I was giving evidence to the Business Select Committee on Tuesday and one of their points is about helping people choose if they are going to do it.
• We can factor in the safest ones. If we did it we wouldn’t just look at cost, but we’d also look at rollover policies, whether companies report loans to credit rating agents (a good thing as it helps prevent irresponsible lending) and most importantly their attitude to people who get in trouble.

  For example, very few payday lenders co-operate with non-profit debt advisors like CAB and CCCS, making it difficult. We would try and show which lenders do co-operate – so if you got in serious trouble you know they’d behave reasonably.

MSE Wendy and MSE Alana’s arguments against:

Rather than putting the counter point myself, here are MSE Wendy and MSE Alana’s worries about it:

By including specific company names in the guide people may think we approve of the companies mentioned and even with the warnings, people could see this as an active recommendation.   

There’s also the issue that there are enormous numbers of small local payday lenders across the UK, so we could only include the big ones in the best-buys.

What’s your view?

PS. We don’t intend to use any affiliate links (links that pay the site) to payday lenders – see how this site is financed.

Past related blogs

• Can you use payday loans to boost your credit rating?
• Fact: borrowing £100 at Wonga’s APR costs more than the US national debt (over $14 trillion) after 7 years!
• Don’t tell MPs I’m against payday loan regulation!
• MP says don’t cap interest rates, cap loan costs
• Should we worry more about 10% interest than 2000% APR loans?

Ditch prepay meters for free and let MSE switch for you: ideas given to Chris Huhne

This meet came about on the back of the Energy Summit, (see my PM if prices don’t fall, this summit will be deemed a failure blog) and I was pleased it felt far more constructive. The minister seemed interested in gathering ideas and keen on genuinely checking out the feasibility of them. Here are some of the main things we suggested (it’s relatively scrappy as I just banged these notes out after the meeting).

• Collective switching for the elderly and others.

  Our system is predicated on ‘keep switching to save’. That’s fine for the information enfranchised, web using audience (see the Cheap gas & elec guide for how to do it!). Yet where it falls down are those who are scared or unable to switch. Whether this be the elderly, or simply people without time, or those who are unsure of what to do.

  We discussed the concept of a ‘collective switch’. People would give their consent for an organisation – whether it be Age UK, MoneySavingExpert.com, a comparison site or another organisation, to be their switching agent. Then when appropriate, that organisation would mass switch everyone (probably via a mass negotiated collective purchase) – in an ongoing service.

  This is something Consumer Minister Ed Davey is looking at the bigger picture of – I’ve spoken to him about it before. Yet as I said yesterday, the problem is there needs to be clear guidance from the Government and a legal ability to switch people over rather than dealing with complex contract issues – and a discussion of what liability the switching organisation would have. 

  While I suspect it wouldn’t mean everyone always getting the perfect deal – both due to the rapidity of change that’d be needed and the unwillingness of big energy companies to agree to super-cheap tariffs for so many – I still think you could keep people in the bottom 10-20% of prices with this system (back of the envelope thoughts).

  We agreed to hold a further meeting on this (with others invited) to discuss how do-able it would be and what the barriers are. While it’d be a departure for MSE this is exactly the type of thing I think the site is in a perfect position to do – and it would help many people.

  Of course though there are costs for any organisation running it (and an opportunity for enterprise) but I suspect they’d be smaller than comparison site referral fees, so may overall take costs out – not done accurate study of that though, so its only back of the envelope.

• Free credit meters for those on prepay. 
  

  The fact that some prepay customers have to shell out up to £200 to get a ‘credit meter’, (ie, a normal meter where you’re billed after use) which then gives access to more competition and cheaper tariffs, is a huge barrier (some can do it free though see our Cut prepay energy bills guide for help now).

  A simple suggestion we made was that provided customers pass the credit check, they should be allowed to switch to a credit meter for free – but a fair price can be recouped if they leave that company within six months. This would overcome the cash-flow hump that blocks many moving to cheaper bills.

  The minister did reply by asking if we could take it a step further and simply move people who qualified over automatically. My thought was that wouldn’t be good as a few people do still prefer prepay for budgeting purposes even though it’s not cheapest. Yet a letter offering it to all customers would work. In the long run it should be easier once smart meters are introduced anyway.

• When you switch they shouldn’t be able to raise prices for 6 months.
  

  This wasn’t our original suggestion, it was mentioned at the summit, but I think it’s a corking idea. One of the big switching problems is people tend to switch when one company has hoicked prices – yet they often move to a company who then follows suit. This rule would stop that happening and stop sales staff saying "we haven’t put prices up" to sell deals, when they know full well it’s likely to happen soon.

  The alternative view being considered is a "transfer window" when companies can only shift prices twice a year.

• Lockdown on the differential between tariffs.

  The biggest problem with energy is we want people to ‘switch and save’, yet this punishes those who don’t. For example, one customer would pay £1,000 for energy that someone else pays £1,350 for. It’s a wrongful penalty for ignorance, apathy, fear or a lack of ability.

  For me that makes it a failed marketplace. So I mooted the consideration of a differential cap – ie, a maximum 15% between the most and the least expensive. Of course the worry is they’d simply ditch the cheap deals at first, yet in the long run, simplified tariffs are what most people want (see the simplified tariffs poll results).

• Tips not from the energy companies.

  There are many reasons people don’t switch (see my Note to energy minister: it’s not just laziness that stops people switching blog) and are on the wrong tariffs. One of the energy summit actions was that energy companies would write to customers suggesting they switch to direct debit.

  Yet who believes their energy company? Won’t that just be chucked in the bin as more direct mail spam? So we suggested we do a ‘ten tips for all customers’ that’s branded by us and (if they’re willing Which?, Consumer Focus, Age UK etc) and the Government to ensure everyone knows the crucial info about how to cut bills.

  This would include such things as "you won’t save, but you will pay less than you would’ve done." For me this is what puts many people off. They’ve been burnt by being told they’ll save by switching but their bills don’t drop. That’s because when prices are rising, what switching actually does is stops the price going up (ie, if bills are up 20% and you save 20% it puts you back where you started).

  This type of info on helping people to switch and on where to get free insulation, all from combined sources that are there to help, may actually do the trick.

Those were the big points from the meeting, though it was a long discussion and lots of other things were mentioned. I’d love your thoughts.

P.S. The best bit of the meeting was when the lights dimmed, as it seems true to cause the Department of Energy and Climate Change (DECC) offices have energy efficient motion sensor lights: cue Chris Huhne waving his arms above his head mid-meeting.

Travel money rip off – what the OFT needs to do

The entire ‘paying abroad’ industry is under scrutiny. A Consumer Focus super complaint on the subject, means the Office of Fair Trading (OFT) needs to give its view on unclear charges and how they work. We were asked to submit our view, so here’s what we said (mildly edited and in a less formal form)…

Using debit, credit or prepay cards overseas

Foreign currency costs are a secondary consideration for most consumers when choosing credit cards and current accounts.

For this reason we suggest to our site users that the best-practice scenario is to use a credit card prepaid in full, that is used specifically and only for holiday use – chosen for its overseas fees.

There are a number of specialist cards that have low overseas fees (though they are not very good for UK spending) and can be used this way (see the Top overseas plastic guide).

Yet overall, the lack of transparency makes comparing and consumer choice extremely difficult.

i. If a debit, credit or prepaid card adds a foreign exchange loading, that must be broken out in statements

The foreign exchange rate charged on plastic contains a cost most providers keep hidden. The loading is an extra fee of up to 3% on the exchange rate of the day, which effectively means card companies charge for using foreign currency (so, spend £100 worth of euros and it costs £103).

The fact most companies don’t include this on both debit and credit card statements means many consumers are unaware it’s being charged and that they may be able to cut the cost by using other plastic.

Where the loading fee does appear independently on statements, there is usually little description, if any, leaving it unclear what the charge is for.

We propose all loadings must be broken out on statements for each payment and indicate both the cost in pounds and percentages.

ii. The exchange rate used by debit, credit and prepaid cards must be published and available each day

While most cards base their exchange rate on the Visa and Mastercard wholesale rate, not all cards do. Some use their own rates (akin to trackers and standard variable rates in mortgages) and few publish which rate they use.

This makes exchange rate comparisons difficult, even for those who know what a loading is. Therefore we would propose that the exchange rate used must be published in a summary box as well as the loading.

If the exchange rate is not the Visa/Mastercard wholesale rate, the card company must publish the rate being used each day on its website – alongside the Visa/Mastercard rate to allow ease of comparison.

iii. Foreign currency withdrawals should not count as cash withdrawals

On all credit cards and some debit cards (full list on travelmoneymax.com) the purchase of foreign currency isn’t always treated as a UK transaction and is often considered to be a cash withdrawal, incurring an extra fee of around 3%.

Many consumers aren’t aware of this and of the fact that it results in them having to pay higher charges than if they simply withdraw cash from a UK ATM on their debit cards and use that to pay for the foreign exchange. This anomaly needs to be corrected.

iv. Lack of warning about credit card cash withdrawal interest, even if the card’s repaid in full

Spend on most credit cards and repay in full and there’s no interest. Yet if you take cash out, most cards do charge interest even if repaid in full. This is particularly a problem for overseas spending as it’s often the only time people use their credit cards for cash.

Consumers are not aware of this fact, or the majority would be more likely to pay in full at the earliest convenience to save on unnecessary interest costs, and providers do not go out of their way to warn their customers about the consequences of taking cash out on a credit card or paying for currency in this way.

We think this should be relatively straightforward to rectify.

Foreign currency sales in the UK

i. The nonsense of commission free offers

The phrasing used by most foreign currency retailers also concerns us. ‘Commission free’ offers mean little when it is simply paid for by increasing the spread of exchange rates.

While this may be more of an issue with the financial capability of today’s travellers, too many consumers are led to believe that 0% is the best option when it is just one of many elements to be factored into a decision.

Companies should not be allowed to advertise on commission alone without warnings that this does not mean people are necessarily getting a good rate.

ii. Bureau de change transactions must be regulated and safe

While not covered by this investigation, by far the most pressing concern over bureau de change providers in this internet age, is safety of the cash used. This applies especially where money is held by a currency provider eg. buying in advance.

In this case, as happened with Crown Currency Exchange in 2010, if an organisation becomes insolvent consumers have no protection and any money held by is lost. As long as this remains the case consumers will be more likely to use the main high street banks or the Post Office for their travel money needs, which results in restricted competition and a lack of consumer choice in the market as smaller operators are not able to survive, except for a few local specialist dealers.

We believe a review of the regulation of bureau de change safety and consumer protection is therefore necessary.

Those are our views, your thoughts and discussions on this are most welcome below.

The Eurozone crisis has little impact on you, but a lot on us

Today’s Eurozone news is bleak. The Greek government’s in turmoil, European interest rates have been cut. It is a genuine financial crisis. Unsurprisingly, the question I’m often being asked is: "What does it mean for me?" So I thought I’d try and give a simple answer.

The impact on individual’s finances is limited

For most individuals in the UK the actual direct impact is negligible. Very little has changed. The markets are a worry for those with pension funds, but actually the market is up slightly compared to a few weeks ago. Even without this, it’s only a paper loss unless you sell. Though for those nearing retirement it is a worry – as it’s a big decision deciding when the right moment to convert a pension to an annuity is (see the Annuities guide).

The real impact is for ‘us’

That’s why the real worry isn’t for you, but for us collectively, our economy as a whole. While we’re quite removed from Greece, the nightmare scenario is a domino effect (the game, not pizzas) that could sweep across Europe and eventually topple on us too.

That would have a hit on the real economy, at best, further effecting jobs, salaries, the ability to borrow and stability, and at worse putting our entire financial system under threat of collapse (if you have savings it’s worth double checking the Are my savings safe? guide.)

Yet if I were looking for a bright spark amongst the overwhelmingly black sky, if we are heading for a recession, it’s likely to result in lower demand for oil, so energy and petrol bills could drop on the back of it. Plus of course, specifically with the Euro weakening, it means things will be cheaper for those who go abroad.

So that’s my view in a nutshell, though remember my specialty is personal finance, not economics. Is there anything I’ve missed?

Can you use payday loans to boost your credit rating?

Payday loans are the fastest growing lending type on the market. Even though they’re often 4,000% + APR now they’ve hit people’s consciousness, some are using them for far more than for just borrowing – with some seeing them as a way to boost their credit rating – but will it work?  

This all started on my Thursday Consumer Panel slot on Radio 5 yesterday. I was talking about credit ratings, when I was asked:

Can you use a Wonga loan to boost your credit rating?"

I passed on answering, as it’s not something I’d checked out in detail. Yet it must be a trend, as walking into the Daybreak studio this morning I overheard one security guard advising another to get a payday loan for just such an event. 

Payday lending and credit scores – the facts

So, having done some checking (thanks to James at Experian) and thinking, let me first layout out the key facts.

• Payday loan applications do go on your credit file. When you apply for a payday loan, the application usually goes on your credit file. When you pay it off also shows up.
• Repaying on time is likely to be slightly positive. There are no hard or fast rules when it comes to credit scores. Each lender scores you differently based on its own wish list of what it views as a profitable customer (do read the full Credit Rating guide for a comprehensive explanation).

  Credit scoring works on ‘behavioural predication’, in other words they use the way you’ve acted in the past to predict your likely future behaviour and thus calculate whether they’ll make money from you.

  In general paying off credit ON TIME shows you’re more reliable, therefore this will have a very minor impact.

• In future it may be slightly negative. Currently your credit reference file DOESN’T indicate the fact it’s a payday loan when other lenders check it – just that it’s a loan (and likely of a relatively small amount).

  Yet plans are afoot for credit files to differentiate between payday loans and others, so providers will be able to see the type of loan it is.

  As payday lending is aimed at those with cash flow, money management or just general low income issues – it is possible that some lenders will add a slight negative score once they know it’s a payday loan, even if you repay in time.

  Now I need to stress this has not happened yet, but it’s due. We will do a news story and update the credit rating article when it does.

 OK so it works, but should you do it?

Technically getting a payday loan may well help your credit score, which in turn could make it easier and cheaper to get other products such as mortgages. However, I would still caution very strongly against doing it and here’s why.. .

• Payday loans are expensive and risky. The interest rates on these loans are horrendous, and while the actual cost over the short term may not be too bad (say £10-£20 per £100 over a couple of weeks) the longer you delay the costlier it gets (see my Wonga APR would cost more than US debt in 7 years blog for the dangers).
• There’s a way to do it better and for free. There are many ways you can pretty up your credit worthiness (see the Credit boosting guide for more) to help (re)build your score.

  The big one, as many realise, is by getting some form of credit product and paying within the rules. Yet if you’re going to do that, by far the best way is to get a credit card repaid in full (preferably by direct debit) each month so there’s no interest and no cost. Then do say, £50/month of your regular daily spending on it, and this is likely to have a much bigger positive impact.

  You may be thinking "but that’s the blooming’ point, I can’t get a credit card", but there are special cards which have higher interest rates (30%-60%, which is still far less than payday loans) and anyway the interest rate is irrelevant if you’re repaying in full.

  So this technique smacks the bottom of getting a payday loan (which also risks future negativity once the way credit files deal with this lending changes). For full info see the Best ‘bad credit’ cards guide.

Related past blogs

• Fact: borrowing £100 at Wonga’s APR costs more than the US national debt (over $14 trillion) after 7 years!
  
• Don’t tell MPs I’m against payday loan regulation!
  
• MP says don’t cap interest rates, cap loan costs
• Should we worry more about 10% interest than 2000% APR loans?

Do you still have rights if you pay in Tesco (or other) vouchers?

Buy something from a store in cash and the store must obey the Sale of Goods Act rules. But what happens if you’re one of the growing band of voucheristas who buy without cash?

In a nutshell your rights are identical. When you purchase goods or services you are entering into a contract between you and the supplier. They provide you with the product in return for a ‘consideration’. There is nothing that requires the consideration to be in cash – you just need to pay in something that is acceptable by the supplier.

Therefore if you offer ‘Tesco Rewards Vouchers’ (where you trade-in normal vouchers for Rewards worth up to 4x the amount, see Tesco Rewards Boosting guide) and the supplier agrees them (which is of course due to its own contract with Tesco to do so knowing it’ll get some remuneration from Tesco), that forms your consideration.

And if the voucher simply gives you a price reduction, then it’s even simpler. Your consideration is still in cash, just at a discounted amount.

What are you rights?

If you pay in vouchers, just like cash goods must still obey what I call the SAD FART rules. 

That means any goods bought are faulty unless they are of…

Satisfactory quality, As Described,  Fit for purpose, And last a Reasonable length of Time

(For a full explanation see the Sad Farts Consumer Rights guide).

This ONLY works for faulty goods

Many people often mistakenly believe they have a right to take goods back if they change their mind. That simply isn’t true, whether cash or vouchers, you only have a legal right to take things back if they’re faulty.

If not, it is totally up to the retailers’/providers’ discretion – it can simply choose not to do anything. 

Some do have published returns policies, in which case they’re enforceable as part of your contract. Yet if the policy says ‘no returns on goods bought with vouchers’ then that’s it – them’s the rules.

Refunds should be identical to the consideration

If goods are faulty and you take them back straight away, then you have the right of a full refund (later you’re only entitled to replacement or repair). 

This refund should put you back in the position you would have been in if things hadn’t gone wrong, so it’s likely you’ll get vouchers back (though obviously it could chose to offer you cash, and then you have a choice to take that or the vouchers).   

Again just to emphasise, that is only if goods are faulty. If they’re not faulty, you’re at the mercy of the company’s returns policy. If it were to say, ‘if you pay in vouchers, any returns will be refunded in chewy cola bottles’ then that’s the rule. You then have a choice – keep the goods or get the cola bottles.

Related blogs

• My embarrassing consumer rights confession – time to admit it
• "I’ll discount it for the fault, but then you can’t return it for other faults"
• ‘This does not affect your statutory rights’ – what it really means
• Shop staff quoted nonsense rights at me – isn’t it time they were taught the law?