Mortgage penalty shocker, part two

This is becoming a hot issue as the penalties for borrowers trying to get out of fixed-rate mortgages just keep going up. I highlighted it here two months ago and have done recent Star articles here and here.

I’m concerned for a few reasons:

— When it comes to calculating an interest rate differential penalty, lenders can do what they like. There is no standard formula, nor is there any federal legislation or oversight. So, how can consumers challenge the bank’s math?

— Going to the bank’s ombudsman isn’t a solution. Most don’t even deal with complaints about rates or fees. Their view seems to be that if you had read your mortgage contract, you would have known a penalty was charged to get out early. You didn’t need to be told of the risks when taking out or renewing the mortgage.

— Using the mortgage prepayment privileges can make the IRD lower. But do banks tell borrowers? Not in every case, that’s for sure. Why isn’t there a law that this option must be made available to clients?

— Selling your house because you can’t afford to stay there is bad enough. It’s worse when a giant fee added at closing can swallow up whatever rewards you expected to make from the sale. Shouldn’t lenders warn financially stretched borrowers that they should plug the numbers into their planning?

After reading the comments below, I hope you agree that something needs to be done to help borrowers. These IRD penalties disappeared for a few years, but now they’re back with a vengeance.

Canada’s proposed credit card reforms

I’m happy to see more controls on credit cards. But what Finance Minister Jim Flaherty unveiled last week were suggestions for better disclosure of credit card practices, instead of strict limits on those practices.

Take the idea that card issuers would calculate each month how long it would take you to pay off your balance if you made only minimum payments. The Canadian Bankers Association rughtly argued that this would be costly.

Why couldn’t credit card bills just come with a warning that paying the minimum amount is dangerous, giving an example or two? Who needs an individual calculation? Far better to make card issuers raise the monthly minimum (say to 5 per cent from 3 per cent now), so that your balance would get paid off more quickly if that’s all you paid.

The only thing I really like here is the insistence that you get a 21-day grace period for new purchases as soon as you pay your balance in full. That’s how all credit cards used to work, but most have changed to the U.S. system that requires you to wait two months after you pay in full to get back the grace period on new purchases.

The proposed regulations will ensure that these large banks adopt the methods currently used by Desjardins, National Bank, HSBC Bank and others so there’s also a 21-day grace period on new purchases, regardless of any balance carried forward.

Flaherty said the big banks “resisted” this particular move. “It will cost them tens of millions of dollars,” he told reporters.

This quote from a Windsor Star story says it all. Only a handful of credit card issuers still use the old method. The rest don’t want to go back, since they make too much money with the new method.

The Financial Consumer Agency tries to explain the two methods of calculating interest here. But it’s hard to explain and understand, especially with the giant flow chart at the bottom.

I’m impressed that Minister Flaherty went along with requests to ban Method 2. The credit card issuers could have gotten away with this practice for years, because it’s easy to hide. And most people don’t worry about how their interest is calculated.

But it’s fundamentally unfair to make people pay interest on new purchases even after they pay their balances in full. For this proposal alone, I thank the Tory government for clamping down on credit card greed.

How does Bloomex stay in business?

That’s a question I hear a lot about this online florist, which has unfriendly policies and poor customer service. The company hired a PR person who worked with me on complaints. But now she’s missing in action, much like the flowers that Bloomex delivers.

Mother’s Day has come and gone, generating many complaints about floral tributes arriving late or mangled. So, I’m starting a new thread about Bloomex and, also managed by them.

Here’s some advice to frustrated customers: Instead of pursuing the company for a refund, which will just frustrate you, call your credit card issuer. It’s easy to get a chargeback when you can show you paid for services that were not rendered.

If there are enough chargebacks, this company will find it hard to maintain its credit card privileges. And that could be the first step toward not staying in business.

What I’m hearing from readers

Thanks to this website, which received a record 256,000 hits last month, I’m getting more complaints and inquiries from readers than ever before.

Many people find me while doing a Google search for a specific subject. Here are the most popular searches in April, according to my website statistics:

— Wholesale energy scam (34)
— Direct Energy (31)
— QuickTax 2008 (31)
— Bell vs Rogers (18)
— Direct Energy scam (13)
— Bell (13)
— Aeroplan vs Air Miles (11)
— CIBC exchange rate (10)
— Rogers (10)

I love the emails that start this way: “I was looking for an ombudsman at Bell … or Rogers… and found your website.” That’s how many folks find their way here. Welcome, everyone. Too bad the telcos don’t believe in hiring an ombudsman.

My readers give me a wealth of material. What I can’t use in my Star columns often goes on this blog. Wish I had more time to do more frequent updates.

I’m posting some of the more interesting or offbeat complaints I’ve received lately. Hope you enjoy reading them.

Are you covered for cancelled trips?

Last fall, I went to Cancun for the first time and saw why this vacation area is so popular. The sun always shines, the beach goes on forever and most hotels offer unlimited food and drink as part of a package deal. And if you get tired of lying around, you can hop a bus and see fabulous Mayan ruins.

Now, of course, the H1N1 flu has made us all steer clear of Mexico and the federal government is warning us not to go there for “non-essential travel.”

But what if your trip is already booked and paid for? Do you have the right to a refund if you cancel?

U.S. airlines and tour operators are being lenient with travellers who want to change their plans, says Consumer Reports. They’re letting travellers going to, from or through Mexico to change their destinations or travel dates without penalty or increased fares for the same type of discount ticket.

“In general, that preserves the value of the travel that was purchased, but you won’t get a cash refund,” says the magazine, which makes a couple of important points:

— A health warning from the government doesn’t negate any contractual obligation you have. Only a government action preventing you from travel to your destination provides enough force to let you break your contractual obligation without penalty.

— Standard trip cancellation insurance policies don’t protect against circumstances like the current flu outbreak. “Termination-at-will” policies might cover this situation, but they’re very expensive and hard to get.

Tour packages and airline tickets are typically non-refundable. Airlines will let you reschedule flights, subject to a penalty and a higher fare, during the following year.

The unusual leniency “seems to signal the seriousness of the epidemic in Mexico, as well as the poor health of the travel industry, which can ill aford to anger consumers as the recession wears on and traffic slumps.”

Do you know anyone who’s had to cancel a trip to Mexico? Were they treated with compassion by the airline or tour operator? Please send along your stories.