According to a report on BBC, the loan fee scam which many consumer group has campaign against is now to be closed by OFT, more information about this follows in the except from the article by BBC:
Dishonest credit brokers that demand upfront fees for loans they have no intention of arranging will be closed by the Office of Fair Trading (OFT).
The measure is part of a general crackdown by the regulator following a complaint from Citizens’ Advice.
The charity said some unscrupulous firms were cold-calling thousands of potential borrowers and offering loans in return for hefty fees.
The OFT is making it mandatory for fees to be refunded if a loan is not agreed.
“Our evidence suggests some businesses are deliberately taking people’s money upfront with no realistic expectation of finding them the type of loan they need,” said John Fingleton, the OFT’s chief executive.
‘We will continue to take robust enforcement action against businesses using unfair or improper business practices and we are providing new guidance making very clear the kind of behaviour we expect from the industry.”
In parallel, the OFT will bring in new rules later this month for debt management firms to stop them making misleading claims in adverts, charging expensive fees upfront, giving poor advice or posing as charities.
The OFT is going to ask the government to consider changing the law to ban outright the practice of credit brokers demanding upfront fees in exchange for arranging loans.
full story here: bbc.co.uk/news/business-13604411
The Ups and Downs of Payday Loans
Payday loan is something you opt for when you need instant cash and other options are not available. It is usually a short-term loan that you take and since it is available at such short notice, it also charges high rates of interest. Emergencies can occur any time in your life and if you need money instantly, Payday loans are thought to be the one of the best solution. However, just like these loans are very convenient and easy to obtain, they also have their down side. You must weigh your options very carefully before you decide to get apply for a payday loan. Some Payday loan have been said to charge interest rates of up to 572%.
Payday loans are available on a short-term basis (usually 2 weeks) to help you meet a financial emergency until your next payday. You have to repay the loan once you receive your paycheck. The interest rates on these loans are rather high and the main reason for this is that they are available on such short notice. If you need cash fast and are not able to get credit at the bank, you may opt for these loans.
How much can you borrow on Payday loans? This depends on the net income that you have after tax deductions. The best part about these loans is that there is no check done on your credit history. While there might be other terms and conditions that govern Payday loans that vary from one company to another, the basic requirement is that you must be 18 years of age or over and employed with the same company for the last 6 months at least. You also need to have a bank account that is at least 6 months old.
The rate of interest charged by payday lenders is quite high. It will be anything between 15 and 30% of the amount you borrow. It is then made payable on top of the amount that you have borrowed. The loan companies have their justification for such high rate of interests. The first reason is that these loans are made available to anyone irrespective of the credit history he/she has provided he/she fulfils the basic eligibility criteria. Banks have a very strict procedure of approving loans, which the Payday loan companies don’t. Paperwork is almost minimal in Paypay loans. These are the few advantages that these loans provide to you and these are the main reasons why such high interest rates are charged.
There is a lot of controversies surrounding the Payday loan industry and how the loan is used by their clients. Government-funded consumer champion, Consumer Focus claimed that “borrowers are becoming dependent on high-cost credit they cannot afford to repay, People are turning to supposedly “last resort” payday loan companies again and again, rather than using them only in emergencies. The extremely high interest rates charged by the company tends to push people who use them regularly into deeper debt than they were before. UK is not the only country where Payday loan is giving the authorities and consumer organisations concerns. In USA, the Mississippi Senate recently gave final passage to a bill designed to reduce fees on payday loans.
Payday Loans FAQ
What is a payday loan?
It is short-term loan, advanced to the borrower typically till his or her next payday. They are often paid with a post-dated cheque or by instruction given to the lender to make automatic withdrawal from the borrowers account.
What sort of people use payday loans?
Payday loan users tend to be young and single with below-average incomes, it is estimated that majority of Payday loan users earn below £25,000 per annum however this author came across two instances of Payday loan users with income of of over £40,000. It is also estimated that more than half of borrowers are under 35.
How often do people use Payday loans?
It is argued that people can get “addicted” to using Payday loan, with an average user returning to the lender about 4 times a year or every 3 months.
So how can people get into debt trouble?
Not repaying the loan at your next payday can lead to problems. Rolling the loan over to your next payday significantly increases the interest. Other do pay the loan but take out another loan almost immediately.
How can I get help if I get into debt trouble?
Your local citizen advice bureau should be your first port of call, they will be able to advise you on the best way too move forward.
The Financial Inclusion Scheme, a debt advise services funded by the government has been granted stay of execution for at least 1 year. The business secretary Vince Cable has just announced that he has found £27 million pounds to the hundreds of debt advisers that run the scheme in work for the next one year.
Earlier this year, the government announced that it will not longer fund the scheme so the scheme was set to close with hundreds of debt advisers made redundant. Many consumer organisation and some MPs has been calling on the government to continue funding the FIS. They are said to provide vital help and advise to families struggling with debt ranging from over stretched flexible friend, loan sharks, catalogue and other small debts.
With the new cash injection from the government, the scheme is set to continue for another year.
A book once described how a tribe in Brazil trap monkeys. Well, its a trap and its not a trap because the trap does not actually contain a devise that physically restrain the monkey, the monkey is kept trapped by its own greed.
The trap is just a bottle with a nuts inside it, the neck of the bottle is wide enough to allow the monkeys hand through, but once the monkey grab hold of the nuts, the hand becomes a fist, which is too big to come out of the bottle, the monkey being too greedy (or not cleave enough) does not let go of the nuts and escape but stays there trying to pull its clenched fist out.
The above description is not unlike how some consumers behave when responding adverts that offer them cheap flights to some wonderful destination for £2. By the time hidden charges and cost of processing payment by credit card is added to the £2 the flight end up costing the same of even more expensive than the cost of the same flight will full service airline that do not apply hidden charges to their fares.
Low cost airline are not the only industry accused of applying unfair credit and debit card surcharges to their products and services, many other commercial organisations are accused as well. For consumers who feel their are being unfairly charged, a champion has emerged to take on the unfair charges on your behalf, its Which? the consumer organisation.
Which? described some of the charges levied on customers who pay online by debit or credit card for flights and other services as a “murky practice”. Which? is now filling a super-complaint to the OFT (office of fair trading). Consumer organisation have the statutory power to make super-complaints on behalf of consumer when. OFT is expected to investigate and respond to Which? super-complaint withing 90 days. If the OFT agrees with Which? that the organisation accused in the super-complaint have a case to answer, OFT will launch a full investigation which can result in fines or lays asking the concerned companies to make changes to what they charge customers for processing credit and debit cards.
The government and bank conjure £190 for businesses under project Merlin
On the day that it was revealed that half of the donation to the conservative party comes from the City, the chancellor of the exchequer George Osborn announce a deal the government has just reached with the banking industry. The deal called project Merlin see the bank agree to lend between £190 – £200 billion to businesses in 2011. One of the biggest criticisms of the banks apart from the excessive bonus key bankers are said to be making is the fact that bank are not lending money as much as they used to, especially to small businesses.
Of the 190 billion pounds agreed under project Merlin, banks are to lend at least £76 billion to small businesses. Measures to address the public concern over bank bonuses is also tied in, banks will reveal earning of their top earners and some bonuses will be curbed. The bank of England will monitor the lending targets set to ensure banks are meeting the targets.
Yesterday, the chancellor announced a levy of 800 which is strongly linked to bank bonuses but not is not labeled as such. The chancellor ruled out a direct bank bonuses levy which his shadow Ed Balls and the labour party call for. Part of the levy placed on bank is to pacify public anger at the banks. The chancellor acknowledge that the levy will not quite satisfy the public but it will go someway to reassured them that the government is doing something about the banks.
Equity Release – A tax efficient way to pass on your legacy?
Equity is the value of your home less any outstanding mortgage or other debt secured on it. In most cases, section of the population targeted by equity release industry tends to be home owners who are retired or nearing retirement (Usually people aged over 50). Equity release process is said to help home owners free the equity built up on their home by settling any outstanding mortgages or other loans and providing access to the cash value of the equity.
Equity release is a growing industry, more so in the adverse economic climate that followed the credit crunch but the industry does not seem to enjoy the recognition other sector of the financial industry enjoys, perhaps because of the fact that it seem to base a significant part of its projection on the death of people releasing equity on their home.
There are different types of equity release products on the market offering different ways of releleasing equity on your home whilst continuing to live in your home. Some people argue that equity release is a tax avoidance but other argue that it is just an efficient way ot enjoying some of your hard earned cash while you are still alive or a tax efficient way of providing for your benefactors before you die.
Properties in UK had experienced a significant increase in value in recent years, taking a lot more people into the inheritance tax bracket than ever before. Any estate worth £285,000 or more falls withing the inheritance tax bracket. Inheritance worth more than £285,000 attracts a tax of 40%, this will see an estate worth half a million paying £80,000 in inheritance tax. Critics of inheritance tax argue that its a soft target for the excheuqures when looking for ways of raising more revenue. Another arguement of the critics is that inheritance tax is not fair becuse the person who leave the estate behind has already paid taxes on it.
Equity release is said to be a tax efficient way of passing on your asset to your beneficiary in a much more efficient way than the usual way of passing on asset in a will after death.
More people become insolvent in England Wales in 2010
Figures released by the government recently show that a record number of people were declared insolvent in England and Wales last year. There were 135,089 people declared insolvent in 2010 according to Insolvency Service. This mean the figure for 2010 is up 0.7% on 2009 figures and the highest level of insolvency since 1960. Though the figure is gloomy for personal insolvencies, for companies going out of business, the news was better as there was 23% less company going out of business in 2010 compared with 2009.
Debt, Debt and More Debt
The record number of personal insolvencies for the whole of 2010, which was double the number in 2005, came despite a drop in the final quarter of the year when 30,729 individuals were declared insolvent.
Experts suggested this fall at the end of the year was the result of fewer people being able to attend court proceedings owing to the weather, a more sympathetic attitude from lenders, and people putting off insolvency until the new year.
Insolvencies throughout 2010 were driven by a 6.5% rise in Individual Voluntary Arrangements (IVAs) – which allow an official deal to be struck between the debtor and creditors – to 50,716.
There were also 25,179 Debt Relief Orders – a relatively new style of insolvency for relatively low debts.
However, the number of people taking the more traditional bankruptcy route fell by 20.7% compared with 2009 to 59,194.
Compared with the last recession in the early 1990s, the latest figures show a very different picture.
The number of individual insolvencies has shot up in the past decade, and now far outstrip the numbers seen in 1992 and 1993 of about 37,000 each year, although it is easier now to be declared bankrupt.
Experts said this was because the amount of credit built up by individuals – especially on credit cards – mushroomed in the last ten years. IVAs were also in their infancy in 1992-93.
The Funding Circle is a new business system based on an online market place where people act like banks for the small businesses. Basically, individuals become lenders for some companies, without the bank to intervene. And, as nothing is for free in this world, the lenders get an interest fee that can go up to 6-9%.
Why is Funding Circle preferable instead of lending from the bank? Because due to the nature of the Funding Circle, there aren’t too many taxes that must be paid, and also, from the perspective of the individuals, they have access to all their money 24 hours per day, 7 days per week. Also, they can withdraw their money by selling their parts to other lenders that are looking forward to making some good deals, and that is because, the total loan that is given to a firm, is made from multiple parts belonging to multiple lenders. Therefore, this business can’t go wrong at all. After all, the worst thing that can happen is to loose a small amount of the sum that was invested, but not all of them. Though, there is a sum that can go up to $30000 that is practically guaranteed.
Why should anyone pick the Funding Circle to invest their money or just to lend some money for their business? Well, according to the chairman of the Funding Circle, Laurie Edmans and to Yasmina Siadatan, founder member and top lender at Funding Circle- with the mention that she won the show “The Apprentice”, there are several motives and here they are.
First of all, it is easier for a company to obtain a lend. As well, the investor’s revenue is a bit bigger than the normal deposit, and even more, investors can get out of the business whenever they want, by selling their rights to others lenders.
As concerning the investors, they can decide on their on whom to give the money and why, as well as they can form groups of investments, groups that will have only a domain of investment. Luckily, most of the businesses are granted by a group of private investors, and therefore there isn’t a major risk of loosing the money.
And, as the Funding Circle is at its start, it has a special offer. Those who’ll enter in this business in the next month, will receive a 2% cash back, no matter what. As well, no fee will be paid, just as a welcome bonus.
Basically, the Funding Circle will act like the Hand Of God in this business as it will help the small businesses especially now, when we’re facing a tough economical crisis. By keeping the interest fee for the companies much lower than the ones that are practiced by the banks, the Funding Circle is the only way for a small company with financial problems to survive the economical crisis. So, now it’s the perfect time to invest in a special and new business, business that will soon be proved to be the business of the century.
The global meltdown that started with the subprime crisis in the US had its cascading effect on many other economies since we are in an era of connectivity and the world is a global village. The financial problems of one country cannot be wished away since there is bound to be some fall out in other countries and that is what the world experienced after the collapse of some of the financial institutions in the US.
UK too had to bear the brunt of this not only due to the general financial crisis linking its own banks and lending institutions but also because of poor management of finance and indiscriminate extension of credit to people who in the first place did not qualify for them. The net result is that there are many in the UK who have run up huge debt and are now wondering how to get out of this trap they have led themselves into. Many are seeking counseling from finance experts and are trying to exercise options suggested by them such as debt consolidation as nobody wants to declare themselves bankrupt and face a whole different set of problems down the line.
However, the positive thing for UK residents is the existence of an instrument called debt relief order whereby people with no tangible assets and very little income can buy time for up to a year to either pay up whatever he or she can or have the debt written off after a year. During this period, the creditor is not allowed to take any action against the defaulter. This scheme does have a limit and other conditions that need to be satisfied by the beneficiary, but at least there is a mechanism in place.
The UK is also different in the sense that the government makes available many social health programmes and also takes it upon itself to solve problems of debt or insolvency of its citizens.
Another option is that of debt consolidation.
Under debt consolidation, the borrower takes a loan at a much lower interest rate and makes use of it to take care of other debt. This is an effective way to handle or settle credit card as well as other overdrafts. This instrument can also be used for personal requirements such as purchasing a vehicle, renovating the house or taking a vacation.
This debt consolidation loan can be of two types – the secured and the unsecured. In the former case, you are required to provide some security which can be in the form of the house, car or some other real estate papers and so on. The tenure of the loan you can take under this can range from between five to thirty years and you can draw between £3000 to £50,000. The only aspect to take care is that of repossession of the security by the lender in case of any default.
In the latter case or the unsecured debt consolidation instance, the loan tenure is a short one of between five to ten years and the amount that can be drawn is between £3000 to £25,000. The interest rate is higher in case of the unsecured one, since the lender is exposed to a higher risk.
Identity Theft – Don’t be a victim
The problem of identity theft in the UK is a serious one and many individuals as well as businesses have had to face this scourge and are always apprehensive about how to make sure they avoid this specter of finding out suddenly one day that their identity has been impersonated due to their carelessness or due to the carelessness of some retail store, bank or government body.
The most prevalent kind of identity theft is the financial one where criminals take on the identity of an individual in order to get financial gains through goods, services or pure cash. In the business world, these criminals clone a particular business unit or organization to gain financially.
Other kinds of identity theft include simple impersonation by a criminal when he or she is apprehended. Some resort to this in order to gain benefits of medical treatment in certain countries that require the individual to have health insurance cover. Some cases of total identity cloning have also come up but fortunately they are quite rare.
Some recent instances in the UK include the theft of some 25 million records from the HM Revenue and Customs, the loss of a laptop that contained about 11 million records pertaining to the Nationwide Building Society, more than 3 million personal details of learner drivers that were again put to great risk when the computer of the third party agency working for Driver and Vehicle licencing organisation went missing and credit card details of customers stolen from the retail store TK Maxx.
So what is the importance of personal identity and why do criminals find this to be a lucrative opportunity to make money?
Well, since we still do not have a single document in the UK that can be used all across the country to prove one’s identity, many organisations are compelled to use personal details like the name, address, place and date of birth and so on through a whole host of papers such as the passport, driving licence, marriage certificate, bank and utility statements etc. These documents tell authorities who you are and unlike DNA, fingerprints which cannot be duplicated are used by criminals to access information and become that person in order to gain financial benefits or to perpetrate frauds. You therefore have somebody opening a bank account or accessing a loan using your identity or somebody getting credit cards making use of your personal details and running up huge spends on it at your expense. Other more serious cases of illegal immigration, money laundering, acts of terrorism have also occurred due to identity theft taking place.
Though organisations are putting in place various check mechanisms to prevent such frauds from happening, more needs to be done to eliminate this problem totally.
On a personal level, if you suspect your identity has been compromised, you should do the following immediately:
- Get the latest credit history report so that you know whether any attempt has been made to acquire loans using your personal information. It also gives your updated outstanding debt as accumulated by you.
- Contact the banks where you hold accounts and the building society to verify whether any financial impropriety has taken place.
- Contact all utility agencies such as electricity, water, cable television, internet etc and check with them about any attempts having been made by anybody to change current arrangements.
- Get your computer thoroughly checked by a professional for any leakage or spyware that may have been introduced to get access to any of your records.
In terms of what you can do to ensure that your identity is not stolen or compromised, you need to pay attention to the following:
- Tear up, shred or burn receipts which display your card number
- Make sure you do not use the same password for all accounts
- Do not use your mother’s maiden name or your birth place as security passwords
- Beware of phishing mails and do not respond to them.
Most importantly, if you find out there has been an identity theft, it is essential to remain calm and keep copies of all documentation you have exchanged with the various government and other authorities for future reference if required in order to fight any legal battle.