From credit interest rate jacking to overbooking flights: 7 legal rip-offs and how to fight back
We take a look at the entirely legal practices some firms use to rip us off and how to beat them.
Not all rip-off practices are illegal.
Some firms, happy to charge exorbitant fees or sell us services and products that don’t exist, are operating well within the rules.
Here are some of the worst legal rip-offs we’ve spotted and, where possible, tips on how to dodge them.
Credit card rate jacking
Credit card firms have a sneaky way to make borrowers pay more.
Over the past few years, firms have been hiking the APR on existing customer deals by as much as 10% even if they keep up with repayments and stick to the rules.
The hikes are linked to a lender’s rate-for-risk pricing policy, which means the interest they charge can change if a customer’s credit score dips.
Paradoxically, this is all in the name of responsible lending. This sneaky policy means even good customers can suddenly face a jacked-up bill, which may hinder their ability to repay debt.
It’s an increasingly widespread practice, but you can beat the rate hike if your lender decides to turn on you.
Your first move should be to ring up and challenge the rise. If that doesn’t work you may want to consider paying off the card in full before the rate changes to ensure your provider doesn’t get a penny more from you.
Alternatively, if your credit rating isn’t as terrible as your provider is making out, you may want to close the card and switch to a better deal.
If all else fails, you may be able to complain to the Financial Ombudsman Service if you think your provider is treating you unfairly and is breaching the rules.
Overbooking flights
The practice of airlines overbooking flights – where an airline sells more tickets than there are seats on a plane – is widespread and entirely legal.
Typically, 5% of passengers don’t turn up on time for their flight, so airlines use oversell to ensure they fly planes at capacity every time.
There are only issues if everyone turns up to take a seat, which although statistically rare, does happen.
Figures from the Bureau of Transportation Statistics for the largest US carriers show the number of people denied boarding (voluntarily and involuntarily) was 660,618 in 2016, representing 0.07% of flights.
If all passengers turn up for an overbooked flight, an airline will look for volunteers to give up their seat before boarding and offer travel vouchers or cash compensation to entice them.
If no one volunteers, airline staff simply pick which paying customers to bump.
If you are flying within Europe or on an EU-based airline, you are entitled to compensation of up to €600 (£530) depending on where you are going and how long you will have to wait for the next available flight, whether you volunteer or are forced to change your plans.
As well as compensation, the airline must give you the choice between an alternative flight – either the next available or one at a time or date that suits you – or a full refund.
The rules vary in other countries. Take a look at our guide: Overbooked flights: your rights to compensation and keeping your seat for more.
Sneaky mid-contract bill hikes
Ofcom introduced new rules to crackdown on mid-contract price hikes for broadband, landline and mobile phone customers in January 2014, which state you can leave a contract penalty-free if prices are put up in the middle of a fixed term.
But providers have sneakily changed their terms and conditions to make sure they can impose increases linked to inflation – which is allowed under the new rules.
Disappointingly many firms are choosing to link price rises to the Retail Prices Index (RPI) measure of inflation rather than the Consumer Prices Index of Inflation (CPI) which tends to be higher and they seem to bide their time to pick a particularly good month when this measure is riding high.
The big four mobile networks: O2, Vodafone, EE and Three have all used this trick to raise prices mid-contract this year without triggering the clause that lets customers leave penalty-free.
We dig deeper into this issue in RPI vs CPI: why does inflation always seem to work against us?
If you are fed up with the price hikes you should try to aim for a rolling 30-day SIM-only contract rather than longer fixed 12 or 24-month contracts which can catch you out. You can compare deals using Recombu.
‘Easy access’ savings deals with catches
Some ‘easy access’ savings accounts are anything but.
There are deals that impose withdrawal restrictions that penalise you for accessing your cash too often.
For example, the West Bromwich Building Society WeBSave Single Access account pays 1.20% on balances from £1 to £500,000, which makes it one of the better rates for easy access savings, but you’re only allowed to access your cash once without penalty.
If two or more withdrawals are made the rate falls to a terrible 0.25%.
You should always aim for the best rate for your cash, but you should also pay close attention to the catches that may come with the account like a limit on withdrawals or a variable bonus that temporarily inflates the rate.
You can find the top rates on easy access and fixed rate bonds using the loveMONEY best buy tables.
Never-ending mobile handset loans
The latest smartphones don’t come cheap - the new iPhone X, for example, will cost an astronomical £999 and the new iPhone 8 will cost £689 if you decide to buy either outright.
To spread the cost many of us will try to get the phone on a pay monthly contract, which is effectively a loan that combines the handset price with the cost of the airtime.
The problem is most mobile firms don’t automatically bring down the cost of your monthly deal when you’ve finished paying off the handset part.
Ofcom is aware of the issue and its research estimates that a million people may be paying more than they need to by continuing to pay a monthly fee that includes the cost of a mobile handset after their contract ends.
However, the regulator is holding back on taking any action.
It states: “There may be a need for greater transparency about the cost of the service, the cost of the handset and the effective interest rate on the price of the handset, in order to improve consumer decision-making. Ofcom will continue to monitor the price of handsets and test consumers’ understanding through market research.”
If you have the cash you should consider buying a mobile handset outright and finding a cheap SIM-only deal. You can compare deals using Recombu.
Alternatively, you could try Tesco Mobile or O2 Refresh plans which split the cost of the handset and airtime so your monthly bill will automatically fall once you’ve paid for the handset.
If you are already on a fixed contract deal you should keep track of the cost and ask for your bill to be lowered or switch onto a better SIM-only plan at the end of the fixed period.
If you are thinking of switching take a look at our guide: How to cancel a UK mobile phone contract and switch providers.
Fees to pay a loan back
Paying back a personal loan or mortgage early is a prudent move, but some providers will penalise you for doing so.
These are called Early Repayment Charges (ERCs), and are effectively a way for lenders to ensure they make a minimum amount of profit off you.
ERCs vary from one financial product to the next: personal loan providers are allowed to charge 58 days’ interest for those that pay off their debt early, while mortgage lenders are able to charge a fixed rate on the outstanding loan amount.
If you think the ERC you’ve been hit with is wrong you can complain to the Financial Ombudsman Service.
Alternatively, if you are looking for a new loan or mortgage make sure you compare early repayment charges too. Some of the best deals don’t come with any!
Compare mortgages without any ERCs
Estimated energy bills
Energy companies can use estimated meter readings to calculate your gas and electricity bill.
If you are energy efficient and use less gas and electricity than a typical home you could be paying much more than you need to.
You can put a stop to this by always sending up-to-date meter readings and paying for the energy you use, rather than what your provider thinks you use.
Did we miss any other massive rip-offs? Add your own in the comments section below.
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