First, I have to say the British government and the companies in Britain are very very cash hungry and greedy. They are on the mission of greediness to save every penny they can and to separate the people from all their cash they can.
The person who opens any kind of account like utility account (gas, electric, phone, etc.) has two options to pay that bill if they don’t want to spend extra money. Direct debit or direct debit. This means the person have to pay the company by allowing the company to take the money directly out of their bank account by direct debit on a set date every month, but various amounts, depending how much of the service the customer has used. The money have to be on the bank account by that date or the customer will default on the payment.
The other method would be by check or postal order or money order from the bank, and posting it to the company. The company charges its customers extra for this kind of payment claiming it costing them more money to administer it and to enter it into their bookings. This extra money as follows; The company charges extra £1-1.50 pounds per payment, the bank charge £15 pounds for the money order (called bank draft in Britain), the postal order cost £1.50 pounds per £10 pounds. So if your bill is 55 pounds, you’ll pay an extra £9 pounds for the postal order.
Of course people are trying to save money and opt for the direct debit.
The British government requires everyone who is renting or leasing or owning a house to pay a monthly so called “council tax” that is estimated differently for different districts within the city limits. The amount varies depending on the valuation of the real estate. The average Britt that lives in a city pays at least around a £100 pounds per month or more. Doesn’t matter if it’s an apartment or if its a house. Tax in larger cities, for example London, cost at least twice as much per month. This tax have to be paid by everyone and supposedly cover the services the city offers, like garbage collection, snow removal, etc. The work they do leaves a lot of questions behind but this is what it supposed to cover. For example after garbage collection the streets are littered with flying garbage and if the man collecting it don’t like what people placed outside their house to collect they simply leave it behind for weeks at the time until they mysteriously disappear.
Most jobs in Britain pay minimum or close to minimum wage (£6.15 pounds as of March 2013), so people don’t have that much money. Now out of that comes the monthly council tax, the TV license tax (about 130 per year), there is also a vehicle tax if someone owns one. costing 200 + pounds per year as of this writing.
Most employers deposit the paychecks by direct deposit into the employee’s bank account.
If the person runs into money problems for some reason, say illness or some sort of house or car repair, they won’t have enough money in their bank account to pay the bills by the time the direct debit payment comes around. Now if the money is not there, the company will try to take it out one more time, usually in a few days and after that it goes into collection.
Than the next one comes and that goes into colelction too because the money is not there. So the person falls behind even further.
On top of that most bank accounts comes with automatic overdraft. That means the person can use more than what is on his or her account by borrowing money from this overdraft. The bank charge a percentage (around 24%) or so for the use of this money just like if it was a regular loan.
British banks know most people will use the overdraft sooner or later and they are offering it as an “added service” without the need of application for it. So it’s there to use for whoever wants it and the trouble starts with this.
The customer can’t pay a bill for some reason. The other bills are coming in and taken out of the bank account automatically by direct debit. The customer goes into the overdraft. Comes the next wage deposit the bank takes out the overdraft amount the customer had used. The monthly bill comes again and there is not enough money to pay the bill again because now the customer had to pay back the overdraft amount too. What happened is that they had added an extra bill to their monthly bills repertoire by using the overdraft. The banks knew this because of profiling techniques they use. (money is in the poor people’s pocket, slogan)
Now the direct debit works on the first comes first served basis. Whoever finds the money on the account will get paid and when the money runs out that bill doesn’t get paid and defaults. When all the money from the account gets taken the overdraft kicks in but by that time a bill or two is in default and collection.
The next month comes and the circle starts again and the person falls even more behind. (assuming they don’t get extra money from somewhere to replenish their bank account). Soon there will only be enough money to pay the overdraft and the bills will be left behind because of the cost of the money order or the postal order (which is same as money order but the post office issues it), and the extra charge the utility and the other companies charge for paying the bills by those checks.
After a while the customer not going to get money or postal orders because they cost too much and falls completely behind with the bills. Paying only the necessary ones like gas and electric and phone by either money orders or by borrowing a friends credit or debit card.
So the companies and the banks reason to offer convenience by greediness is backfired on them because they are now not getting any money from the customer and they can start collection and packaging their debt for sale.
The customer had screwed up their credit because they had no choice . Why didn’t they have a choice? Because they were presented with the extra expenses the automatic overdraft allowed them.
Now the customer ask their employer to pay them by cash or check they can cash in at a check cashing facility and although that cost them extra money for the percentage the check cashing service charge (10 or 15%), it doesn’t matter because that money is taken out before they even see it so it’s not even there. Psychologically they get all the money so they are not bothered by it and they know it up front it’ll cost them money.
Now the banks and companies starting collection and calling the customer a hundred times a day asking them for the money. The customer first answers the phone but after a while they only answer it if they know the callers number and sooner or later they’ll change mobil number and not answer their land line number if they have one.
So the banks and companies are out of their money and now they have no choice, but to write it off and sell it as a bad loan to a collection agency that will try to collect whatever they can and sell it further on to a company that buys second and and third grade debt.
I think by banks not offering overdraft and companies not being greedy would have made them richer because by waving that 1 or 2 pounds they charge for check payments to the customer, would have saved them the borrowed money which is I am sure is more than the money they would have made by those charges.
Money is in the poor people’s pocket that’s true, but they aren’t stupid. Poor people spend more money because if they see something they have to have it and have to have it now. Banks and big companies know this. Now just give those people some credit for being intelligent too and everything can work nicely together.