How can payday lenders get away with anonymity?

MyMoneyPA director Glenn Morrill states: “At the weekend I received an email that offered me the opportunity of taking out a payday loan.  On further inspection of the email and website, available through a link in the content, it becomes apparent that there is no information at all about the company.  There is no privacy policy even though you have to read and agree it.  When you click through to the loan conditions (which need to be read and agreed to) you get a blank screen.  The lender is www.lendingpartnership.com.

So whilst you provide key information such as employment and bank details you have no way of knowing who is behind the website.  No company name, no company registration number, no address.  I would like to know how this company got my email address as I certainly wouldn’t have given anyone permission to use it for such a scam.”

These legal loan sharks are able to use the power of the internet to get to many people, simply and easily.  The more venerable consumers will see these offers as an opportunity to raise some cash without really appreciating the consequences.

The body which represents short-term lenders, the Consumer Finance Association (CFA), recently stated to MP’s in Parliament that borrowers are “intelligent, financially-savvy consumers”.  And whilst the Office of Fair Trading (OFT) is threatening to put the country’s biggest payday lenders out of business it is unlikely to quell the rapid creation of lenders looking to take advantage of the indebtedness of many of the UK’s population.

This industry has to be regulated and quickly.  The current economic climate is really hurting the consumer with average household debt (excluding mortgages) rising again in March after falling since 2009.  According to Credit Action average household debt currently stands at £5,980.  So the temptation to take out a simple ‘temporary’ loan is likely to be significant.  However it is expensive with charges and high rates and if you can’t pay it back in the allotted days agreed the trouble really starts as the lender looks to get back their funds.  Without regulation the payday lenders can use any method to recover their funds and all the time the debt is increasing.

Unfortunately the Financial Conduct Authority (FCA) which has replaced the discredited Financial Services Authority (FSA) has recently said that they are unlikely to use their new powers to cap interest rates and restrict availability as they believe it is limiting choice for consumers and will mean that some are unable to get credit at all causing a far greater problem.  Who are we kidding here?  We cannot let people get further and further into debt without providing some form of respite and an opportunity to get out of their spiralling debt issues.

MyMoneyPA is calling for greater regulation and transparency on who is operating in this field with a minimum set of company data being mandatory so the companies operate in an open and accountable way.  Additionally their full process including fees, interest rates and any additional charges for recovering debt should be stated in their published terms and conditions.

Food Banks - a sign of the times?

Food Banks have been around for decades, providing basic imperishable foodstuffs to the most needy.

These days they are often in the news, usually as a sideline to stories about the economy and Welfare Reform.

We think it's time to take a closer look at how they work, why they are needed and what alternative solutions are available.

Fact one - usually it's front line professional carers that give out vouchers to trade in for a couple of days food supplies.

More facts and analysis to follow, but we need your views and experiences.

So what’s happened to personal finance since the economy nose dived?

MyMoneyPA has looked at the past 6 years to see the impact on personal finance through the period of global financial crisis. How has the UK consumer faired in one of the worst financial periods in modern history?

It is difficult to define when the financial crisis started however the 9^th August 2007 saw the ‘complete evaporation of liquidity’ in the market with banks refusing to do business with each other.  By mid September there had been a run on Northern Rock and in October banks began to announce major losses.  In December the Bank of England began to reduce interest rates from a high of 5.75%, initially by 0.25%.  It was in September and October 2008 that there were mass takeovers of ailing banks globally, Lehman Brothers failed and in the UK the Government took stakes in RBS, LloydsTSB/HBOS and Bradford and Bingley. The base rate tumbled at the end of 2008 to stand at 2% and by March 2009 it was at today’s rate of 0.5%.  This was an unprecedented change in a major financial lever that impacts the economy.

So how has the consumer fared through these difficult times?  There were already issues around the size of personal debt which stood at £1,310bn in April 2007.  It rose to £1,464bn in 2010 and by April this year had fallen back to £1,424bn so still well above the pre-crisis levels.  The average amount owed by each UK adult including mortgages rose rapidly from £27,856 in April 2007 to £30,500 May 2009 falling back to £28,981 in February this year. 

The trend is common on many debt statistics in that whilst the debt burden rose through 2009 and 2010, there has been a reduction of debt although not yet back to 2007 levels.

There has been a steady decline in the average consumer borrowing via credit card, motor and retail financing, overdrafts and unsecured credit with the balances a third lower than the peak in 2009.  The consumer is attempting to get back onto an even keel and whilst getting debt under control in uncertain economic and employment times is difficult the signs are positive.  CCJ’s issued each day have decreased year on year over the last five years to stand at 1,374 per day last month from 2,750 per day in 2008.

Currently, there are good deals available for people with good credit ratings with loan rates starting at 4.9% with Zopa a peer to peer lending operation and numerous zero interest balance transfers with long interest free periods of up to 23 months.  This compares to the cheapest loan rate of 6.9% in October 2007 and a maximum zero balance transfer for periods of 15 months.  In the intervening years, loan rates shot up and fear of default rose with risk based pricing meaning that many people were unable to get close to the cheapest rate and many were lucky to get a loan at all.

In the current climate with lenders starting to be more active and new entrants offering good deals it is worthwhile taking a proactive approach to managing debt. One proactive approach is to consolidate debt which can be extremely advantageous if a good rate can be secured.  The key requirement for the consumer is to understand the options available to them and if the situation seems untenable to seek advice.

Consumers’ paying down their debt and not spending as freely as before the crisis is a major factor in the slow growth of the economy.  The review of key statistics over the past six years suggests that people are in a better financial shape than before the crisis struck but that experiences during that time mean they are not confident about spending too much in the near future.

MyMoneyPA has called for Government stimuli to get the economy moving; whether via capital projects, assisting small and medium companies to employ more people or in inducements to consumers.  There is a need for real and tangible action rather than simply the rhetoric we currently hear from our politicians.

(The data used above was taken from statistics produced by Credit Action, a financial capability charity).