Should New Financial Regulations Extend to Payday Loans?

Payday loans are already heavily regulated to strict standards, but new financial regulations may try to add more. Granted, a cash advance is not the same thing as credit default swap or a predatory mortgage, and many payday lenders feel new regulations aren’t merited, unlike the other industries that caused the collapse. The 2008 panic had nothing to do with payday lending, and they argue, that should these loans be too regulated they might disappear, leaving low-income, high credit risk borrowers, with few other options.

Bad Credit Loans

There are many cash-strapped borrowers right now, who have damaged their credit scores and have no chance of getting even a short-term loan from a conventional lender. Yet, as long as they continued to be gainfully employed, even if they have no assets, they can still secure a payday advance. Payday loans still offer the opportunity for emergency cash borrowing, as they don’t check a credit score. All their customers need is a decent job that will allow them to repay the loan in the next paycheck cycle. When a sudden unforeseen emergency hits, it’s a good way to cover the shortfall in cash.

Used Responsibly You Can Rebuild Your Credit

One of the little known secrets of payday lending is that many people who have suffered a bankruptcy or a foreclosure find them an ideal way to borrow money and rebuild their credit scores. When the loan is repaid on time it becomes a positive entry in the payment history, and can eventually over time help to rebuild a tattered credit history. However, if these loans are regulated out of existence, there is little other no credit type loans that will do the same. Even if you use a pawnshop to get a short-term loan, an asset secures the loan, and therefore there is no entry made in your credit history upon repayment.

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http://www.bbc.co.uk/news/business-10975659

The number of people taking out costly payday loans has quadrupled to 1.2 million over four years, says a report by Consumer Focus. It estimates that employees borrowed £1.2bn in 2009 alone.

Interest charges usually range from 13% to 18% but can be as high as 30% for a month-long loan from some online providers, generating APRs of 1,000% to 2,000% because of the short-term nature of the loans. When borrowers cannot afford to pay off the loan the following month charges can balloon.

Stephanie Derby took out a payday loan for £400 18 months ago. “I was working as a teaching assistant and not earning much money,” she said. “I was behind on payments and needed cash quickly, so a payday loan was the last resort for me.”

Getting the money was easy. Derby took a few payslips into a branch of her payday loan provider to prove her income, and they paid out straight away. But paying back the loan was a different matter. “It took me about a year, by which time the amount had doubled. I had to pay cheques to renew the loan – it was frustrating and embarrassing. I just wanted to pay the money back but I was stuck. I would never do it again, even if I was desperate. The trouble was I didn’t talk to anyone about my debt problems at the time.”

In its study – Keeping the Plates Spinning – Consumer Focus warns that banks need to offer affordable short-term loans, and recommends stronger safeguards to protect consumers.

Its research indicates that payday loan borrowers take out an average of 3.5 loans a year, with an average value of £294. Two-thirds of payday loan borrowers have a household income of less than £25,000. They tend to be young and single.

Consumer Focus stops short of recommending a ban on payday loans. Marie Burton, its financial services specialist, said: “These products are controversial, but we don’t agree with calls for them to be banned. Outlawing payday loans could leave some borrowers vulnerable to illegal loan sharks. Instead we need sensible safeguards to stop borrowers becoming dependent on this high-cost credit.”

Jill Insley, The Guardian

According to research by a consumer watchdog, people who are unable to get a bank loan are now turning to short-term lenders such as The Money Shop and PaydayUK that offer to check credit ratings and approve loans within minutes.

More than a million people in the UK have taken out a payday loan, borrowing £1.2bn in total, according to a report by Consumer Focus published on Saturday.

The market grew by more than 40 per cent last year, while nearly twice as many people took out a payday loan in 2008 as in the previous year. The watchdog said that the market could grow by a further 45 per cent.

Payday loan companies from the US have flooded the UK market in recent years, with advertisements on daytime television and a strong presence online. The companies target people who have unexpected bills, rather than offering long-term solutions to debt.

The Money Shop, the UK trading name of Dollar Financial Corp in the US, which has the largest UK market share, asks on its website: “Need extra cash for life’s little emergencies?”

Borrowers typically pay a set charge of £13-£18 for every £100 borrowed.

The loans are only offered to people with bank accounts and jobs, so are not viewed as a subprime phenomenon, although they tend to be aimed at people on lower incomes. Consumer Focus estimates that two-thirds of loans are taken out by people on salaries of less than £25,000.

Tim Moss, head of loans at Moneysupermarket.com, says many people who take out payday loans are professionals who have “stretched themselves in the times of easy credit”.

“It’s not for people that have never been able to get credit,” he said.

Some people are even turning to the loans to improve their credit rating, as the companies can pass on details of repaid loans to credit reference agencies. The charges on payday loans can also be cheaper than an unauthorised overdraft from a bank.

Consumer Focus has stopped short of following the path taken in some states in the US and recommending that payday loans be outlawed, warning that a ban could push people into using illegal loan sharks.

Instead, it has called for safeguards to be introduced to stop people becoming reliant on the loans, such as only allowing households five payday loans a year. The watchdog also believes that there is a gap in the market for short-term loans that high-street banks might be able to exploit.

By Alice Ross, ft.com

The Office of Fair Trading (OFT) has concluded there is no need to cap the interest rates and other charges levied by high-cost credit providers such as doorstep and payday loan lenders.

At the end of a year-long review into a sector that typically targets those on low incomes who cannot access mainstream credit the OFT said that, while it recognised competition between suppliers was less effective than it might be, overall such lending markets worked “reasonably well”.

The review looked at pawnbroking, payday loans, home credit and the rent-to-buy market.

One of the more recent entrants to the high-cost credit market – payday loans – has come under fierce criticism from campaign groups and MPs. Some charge interest rates in excess of 2,000%, a factor that prompted the Archbishop of Canterbury, Rowan Williams, to call for “an urgent review” of such rates two years ago. At that time, Debt On Our Doorstep, a coalition of debt charities and credit unions, tabled a motion in parliament calling for an investigation into payday loans.

The OFT said today that it had considered the case for price controls for pawnbroking, payday loans, home credit and rent-to-buy credit and concluded they would not address the problems in the sector. It said such controls could further reduce competition in the sector and lead lenders to recover lost income through increasing charges for late payment and default.

It said, instead, that it was recommending improvements to the way the markets operate, including an industry-wide code of practice and more information about such loans to be published on price comparison websites. Some of these, such as Moneysupermarket.com, actually sell payday loans.

Ray Watson, OFT director of corporate services credit, said: “Our report has found that people who use high-cost credit have limited options and find it difficult to exercise what choice they have to obtain the best deal.

“This means competition between suppliers is less effective than it might be. The recommendations we are making would deliver worthwhile improvements to these markets but more radical approaches, outside the remit of the OFT, need to be examined by the government if the fundamental and long-standing issues of lack of consumer power and limited supply are to be tackled.”

Mick McAteer, founder and director of the Financial Inclusion Centre, said he was “deeply disappointed” by the OFT’s findings. “There is no justification for a failure to impose price controls in this sector,” he said. “We were hoping to see a cap on charges phased in over three years while social lenders build up their capacity to offer alternative forms of finance.”

Social lenders include businesses such as Fair Finance, which offers financial products and services to the financially excluded in London, and credit unions.

The Finance & Leasing Association, the trade association for the asset, consumer and motor finance sectors in the UK, said it agreed with the OFT’s findings on price controls. Head of consumer finance, Fiona Hoyle, said: “They would have adverse unintended consequences for consumers, including for the cost and availability of credit.

“We hope that the government will take careful note of these arguments against price capping when it considers the credit and store card markets.”

Commenting on the report, independent consumer body Consumer Focus said that “simply clamping down on high cost lenders will not provide the answer”.

“The OFT’s report shows that it would be very hard to boost competition among high-cost lenders and drive a better deal for consumers,” said Marie Burton, financial services specialist at Consumer Focus. “It is therefore important that the government considers how it can make sure that lower-cost borrowing, like credit unions, is available to borrowers on low incomes.”

A report this week revealed up to 67,000, or 7%, of those struggling with debts say they have already contacted a loan shark or doorstep lender, while a further 13% have considered doing so.

Steven Law, president of R3, the trade body for insolvency professionals that commissioned the research, said: “Going to this source for financial resolution will simply build up a larger store of debt and create more pressure and stress.”

guardian.co.uk

Stacey Faldetta is exactly the type of person organizers of the I-164 measure say they are trying to protect by imposting a 36% interest rate cap on payday and title loans.

A few years ago the single mother found herself between jobs and in need of cash, so so she took out a title loan.

When she missed a couple of payments, she says the lenders began hounding her, her relatives, and her friends.

She wound up up paying over $600 on a $300 loan that was still nowhere near paid off.

So, she decided to give up her $3,000 car to finally get rid of the loan she took out to help pay for it in the first place.

Stacey supports the initiative because she says she feels the payday loan system is predatory and takes advantage of those who don’t have a lot of money to begin with.

While the initiative could help protect some people from getting sucked in to a cycle of debt, others say it could put payday loan stores out of business, forcing the people who rely on them to look for other means for financial help.

Vietnam veteran Mike Dutchak can’t work because of multiple disabilities, including an enlarged heart, diabetes, and degenerative arthritis.

He gets about $2,000 each month in Social Security funds which is almost the exact amount needed to pay his monthly bills. If there’s an unexpected expense, he’s out of luck.

So, in order to have a little cushion every month, Mike takes out a payday loan of $200 which he pays off, with interest, the next month.

Mike’s not only worried about his personal finances if the initiative passes; he says he’s also concerned for the loan center employees who could lose their jobs.

Organizers say more than a 1,000 Montanans have endorsed the measure, but similar attempts to put a cap on interest rates have failed in the 2003, 2005, 2007 and 2009 legislative sessions.

by Kay Rossi (Great Falls)

The number of people taking one out has quadrupled since 1996 according to the watchdog Consumer Focus.

That is despite some companies charging interest rates of more than 2,500% a year.

The organisation is now calling on the industry to bring in more safeguards to protect vulnerable borrowers.

”Payday loans are a valid form of credit and it’s much better for people to take one out rather than go to a loan shark,” said Sarah Brooks, head of financial services at Consumer Focus.

“But we do think there needs to be a limit on the number of loans people take out and how many loans they are able to roll over.”

‘Mounting up’

Research by Consumer Focus suggests that 1.2 million people are now taking out a payday loan every year, borrowing a total of £1.2bn.

For many people such a loan is a quick and efficient way of getting hold of short-term credit.

If the money is paid back promptly on the next pay day, this type of lending can be cheaper than paying an unauthorised overdraft or a credit card charge.

However, if the loans are rolled over, debts can quickly escalate.

Dressmaker Stephanie Derby from Finsbury Park in London took out a pay day loan after she fell behind on rent and bill payments.

She was already overdrawn and at her limit on her credit cards.

”I didn’t feel I had any other option, I had just graduated and all my debts were mounting up, it really was a last resort,” she said.

“I borrowed £400 hoping to pay it back a few weeks later but I was unable to.

“Each month it cost another £56 to renew the loan and after six months the initial loan of £400 ended up costing me nearly £800,” she explained.

Problems

However, the pay day loan industry says when managed properly, many people find this type of lending easy to understand and less risky.

”There is a reluctance among many consumers to take on long term loans from traditional lenders, because they feel their financial situation could change,” said John Lamidy from the Consumer Finance Association.

“But they find that the short term credit offered by the pay day loans industry does meet their needs.

”We are working with Consumer Focus to find out how serious the problems they identify are and whether they affect lots of people or just a few,” he added.

The association is also working with the Consumer Credit Counselling Service (CCCS) to find out how to help borrowers who fall into problems.

The money education charity Credit Action says traditional banks could do more to provide the short term credit people need.

”Banks could offer that kind of money to people by extending their overdrafts for a little bit longer for example,” said Chris Tapp, director of Credit Action.

“Banks can afford to do that and they are still making millions of pounds of profits so they could do more for their most vulnerable customers.”

No alternative?

The British Bankers’ Association (BBA) claims its members are already being as flexible as they can.

”They have to make a risk assessment on every lending proposal they receive and quite frankly it does not do any good to lend money out to people if they can’t afford to repay it,” said Brian Capon from the BBA.

Stephanie Derby’s dressmaking business is now taking off and she has repaid the loan.

She says she will never take one out again.

But for many other people a payday loan is still the only legal option for short term lending, when money is tight and there is nowhere else to turn.

By Susannah Streeter, BBC News

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Managing money when you are in a lot of debt can sometime seem like impossibility. You may be head over heels trying to make monthly payments, and yet unable to get debt free. In the given circumstances, the quickest and most economic way out is to strike a deal with the creditor through debt settlement plan. When you go for this method, you save yourself from paying in full. This is because, the idea behind talking it out with the creditor is to decrease the amount of original debt to a sum of money which is viable for you to return. And if you handle the negotiation process professionally, then the benefit would be as good as a 60 to 70% cut in your debt. You not only save yourself from full debt payment but also get debt free through legitimate and legal manner.

Find free debt counselling through internet services. Pull up your socks and gear up to improve your debt situation starting from today. Begin from searching the internet for information related with negotiation techniques. On line public forums are a good source to learn about prior cases of settlements and related experiences of those who have gone through it. The information you gather will also assist you in choosing the right settlement company to take up your settlement case with the creditors. By choosing these companies, your debt settlement case gets handled professionally, by those who have the skill and knowhow in dealing with the creditors. And in the end in spite of being hard nut to crack, creditors offer you reduction in debt amount. By doing so, they save their companies from greater losses like that of bankruptcy declaration by the debtor. In case of bankruptcy, the creditors face total loss in money. On the other hand, by agreeing for debt settlement, some part of the debt amount, if not all is returned to them.

So you end up lowering your debt, paying lesser every month and also get waiver off from past penalties that were charged due to repeated defaults in monthly payments.

These loans are available with lots of lenders. So you can easily find them over the internet. Faxless Payday Loans can be easily availed with anyone of them. You can also compare the offer made by them on the on the basis of the quotation made by them. It will be really helpful for you to select the best deal available. The best thing about these loans is the easy and quick availability. Though these loans come with fewer formalities you are still required to prove your qualifications for these loans. You need to prove that you are a citizen of UK. You should be at least 18 years of age. You should be employed and should be earning at least 1000 pounds a month.

These loans are issued to you for a period of 14 to 30 days. You can easily avail an amount ranging from 100 to 1500 pounds. So you just need to check your capabilities to repay the loan in time. You should always plan for repayment in advance. This is because the late payments lead you to penalties. So if you are looking for a short term loan then these loans can be really helpful to you and you can apply for them without any hesitation.

by Albann James

Pounds till payday help you with the instant money as per your needs or requirements. If you need money for tiny payments then also these finance schemes are best suited to you. And if you need some more funds say up to Pound 1500 then also you need not feel depressed because these schemes are available for this range of pounds. Such an amount of cash can be raised by you very easily without any further delay in fulfilling your needs till payday.

These loans are issued by most of the lenders over the internet. If you have an internet connection in your own home, then within few hours only you can get the money. Enough money may be obtained by you without going for any kind of formality. This helps you a lot during the process of loan approval. Not only your time is saved, but also you get a great chance to save your extra cost in such schemes. The lender in this scheme does not ask for any collateral of security. The borrower should be a resident of UK and a salaried person with 6 months history of valid bank account. The lenders also levy high rate of interest in these schemes.

These finance options are easily usable for fulfilling all types of personal needs which arise uncertainly before one’s payday. Thus, when your next payday comes, the repayment of the borrowed money can also be done. In this way, you may get the money on easy terms.

by Gamin Kils