Avoiding the credit crunch cowboys

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By Mark Burton
Know Your Money Editor

As the UK's economic outlook grows gloomier, many consumers will be reining in their spending and hoping to make money go as far away as possible to ensure they have enough cash stashed away to face any eventuality.

But while Britons may be earnestly putting cash aside into savings accounts and trying to pay off credit card payments early, the Times has warned that people also need to be mindful of the dodgy deals that tend to surface during a recession as businesses look to make a quick buck.

The Financial Ombudsman Service has announced that it is bracing itself for a sharp rise in the number of complainants who feel they've been ripped off by British businesses - and the Times has chimed in with its compilation of the most likely offenders.

Not so good to talk?

Top of the list was telecommunications giant BT, which is set to make a killing as millions of attractive 12-month contracts come to an end this April. The paper warns that unless people call the company in advance to let them know they plan on switching, they could find themselves locked in for another 12 months.

And for those that wish to break the contract, they could find themselves landed with an exit fee of £180, money which could be put to much better use in a savings account.

The VAT swindle

Next on the list of the cash-gobbling scams was the VAT swindle, with research from the paper showing that many major high street retailers have been hawking their wares at pre-VAT cut prices.

The VAT rate was reduced by 250 basis points to 15 per cent in the pre-Budget report unveiled by Alistair Darling last November. The chancellor had hoped that reducing duty on consumer goods would encourage Britons to splash the cash in the run-up to Christmas in order to boost overall retail sales.

One company singled out for its cut-dodging strategy was Orange, which has decided not to reduce the price of its top-up cards for pay-as-you-go customers. Instead, it is putting £1 in every £10 spent on credit into a "phone fund", which can be put towards a new mobile.

And while Orange is insistent that this contribution is more than the equivalent VAT cut reduction, customers have been less than enthusiastic about the strategy.

"This shows a lack of understanding of customers' needs, particularly in the current economic climate," lamented one user.

The great credit card climb

Despite efforts from the Bank of England's monetary policy committee to reduce the base rate and make mortgages, personal loans and other forms of borrowing cheaper, credit card rates have remained persistently high.

Indeed, the Times reports that some credit card providers have even been raising their standard repayment rates, in some cases by as much as ten per cent, a situation which may make it even more important to compare credit card rates before signing up to a new deal.

Consumers were also warned to be on the lookout for credit card companies who are looking to lure people into spending more on plastic after reports emerged that some providers had sent letters to their customers telling them they had raised their credit card spending limit.

Homeowners who are keen to avoid paying over the odds on their mortgage payments have also been urged to be on the lookout for obscure loan fees, which were said to be making a big comeback.

Among the culprits was Cheltenham & Gloucester, which slapped on an additional £275 "mortgage account fee" on top of its usual administration charges.

An unfair exchange

Last but by no means least, the Times urged Britons to shop around if they are planning on changing their money to go overseas, after FairFX warned that many Bureaux du Change had raised their commission rates.

The added charge is unlikely to be welcomed by many travellers who saw sterling fall to record lows against the euro at the end of last year and again in January.

Some high street exchanges were found to be offering a straight swap rate of one pound for every one euro, which may encourage tourists to try and stretch their money that little bit further by taking a UK holiday instead.

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