Tag Archives: legal loan sharks

FCA Lets Sharks Off the Hook as Cost Cap Set Too High Warns MP

Responding to today’s announcement of the level set for a cap on high cost credit agreements by the Financial Conduct Authority Labour’s Shadow Competition and Consumer Affairs Minister, Stella Creasy MP, said:

Today’s news will be welcomed as an early Christmas present for Britain’s legal loan-sharks. This cap is just £1 lower than their current charges. This is an industry where some firms are making nearly three quarters of a million pounds a week from British customers- such a high cap will do little to tackle these rip off charges.

We’ve warned regulators this cap needs to be much lower to really change the behaviour of these companies, but today’s announcement shows they are still not listening.  Other countries are much stronger at taking on lenders. Borrowers in countries like Japan, Australia, Canada and parts of America all have better protection from being preyed on by these companies, showing what can be done to end legal loan-sharking.

This year debt charities and the financial watchdog have reported rises in cases involving payday loans causing problems for consumers, showing just how toxic this industry is for many. Today’s announcement means yet again these sharks have slipped through the net.

We have already seen many of these lenders try to evade capture by changing the names and nature of their product. Two years is too long for consumers to find out they are still being ripped off in this market. The FCA must commit to reviewing the level of the cap and what it covers within a year to ensure it reaches a more effective level.”

Notes:

1. Stepchange debt charity saw a 42% rise in payday loan cases this year with 13,000 more payday loan borrowers seeking help in the first half of 2014 compared with the same period in 2013 – http://www.stepchange.org/Mediacentre/Pressreleases/paydayloanproblemsonrise.aspx

2. The Financial Services Ombudsman received double the number of complaints about payday lenders in 2013-14 than in the year before and found against lenders in two-thirds of case: http://www.financial-ombudsman.org.uk/news/updates/2014-payday-loan-debt.html

3. A cap of 0.8% per day means companies can charge £24 per £100 borrowed.  In its market study the OFT found the average cost of providing credit to be £25 per £100 meaning many firms were offering it at much lower costs.

 

FCA Risks Legal Loan Sharks Slipping Through Their Net Says MP

Responding to the announcement by the Financial Conduct Authority of its proposed cap on payday loans and high cost credit, Stella Creasy MP, Labour’s Shadow Minister for Competition and Consumer Affairs said:

moneyshop1

Anyone who thinks today’s announcement is the end of legal loan sharking in Britain is in for a nasty shock. The cap proposed today by the FCA works out at only a pound less than the companies are currently charging, meaning its likely to have at best a limited impact on their lending behaviour. With the news there are almost 400 of these legal loan sharks in Britain, rather than the 240 the Government once claimed, getting this right is even more important.

Without further revision, this total cost cap of 100% of the borrowed amount will leav

e British consumers less well protected than their counterparts in Japan and most of Canada and the United States. Not everyone who takes out a payday loan gets into financial difficulties, but enough do due to the terms and structure of the loans, it is clear the business model is not fair. If the level of the cap does not remove the incentive to do this it is meaningless.  That’s why The FCA should and could go much further in providing the protection consumers in Britain need from the vicious cycle of debt these loans all too often create.

Indeed, many payday lenders are already trying to evade even this measure – but whether changing the nature or length of their loans to avoid the regulators they are still doing the same damage. The Financial Conduct Authority must commit to continually reviewing and reducing this cap and as well as ensuring it covers the whole of the industry to make sure none of these legal loan sharks slip through their net.”

Notes

1.    Setting a cap on credit at 0.8% per day works out to be £24 per £100 on a 30 day loan. In its report in 2012, the Office of Fair trading found the average cost to be £25 per £100. This will allow for £24 in initial interest plus a £15 default fee and a remaining £61 in default interest in roll-over fees. This cap still leaves British consumers less well protected than their counterparts in Japan and most of Canada and the United States.

2.    Many payday lenders are altering the terms of the loans they offer in an apparent attempt to circumvent definitions of short term credit, moving from 1000s % APR over a matter of weeks to 100s% over 6 months or longer or offering to top up loans rather than offer a new loan each time.

3.    The FCA have said that they will review the cap in two years’ time, but as we have seen, these legal loan sharks can do tremendous amounts of damage to people and communities in that time. A regular review with industry, debt charities and consumer groups will ensure that if the cap isn’t working, these problems are identified and corrected as soon as possible

4.    Today’s announcement shows that if the political will was there this cap could be introduced before the end of this year not next. Labour has been calling for the cap to be introduced earlier to take in the Christmas 2014 period as a time when people are far more likely to get into debt or seek to cover purchases with a payday loan. Labour has called for these reforms in place by October 2014 but time and again the Government and the FCA have ignored this proposal.

The Fight Against Legal Loan Sharks is far from over say Labour as Competition Watchdog Shows Harm Caused by Payday Loans

Responding to the interim report on the Payday Lending Market by the Competition and Markets Authority, Stella Creasy MP, Shadow Minister for Competition and Consumer Affairs said:

“Today’s report confirms what many of us have feared for so long- the payday lending industry is ripping off British consumers. Over the course of their term of office many have tried to warn the Government of the anti-competitive and damaging practices of the payday lending market but they just wouldn’t listen, claiming it was the nature of the market. Well now we know that the opposite is true- this research confirms people are overpaying for this kind of credit because prices are distorted. That 80% of customers have to take out more loans within a year reflects just how the industry is helping to keep people in debt as a result.

“Letting legal loan sharks get away with this means Brits are losing out to the tune of £45m a year. The belated Government u-turn on capping the cost of credit is welcome, but it has come too late to prevent the personal debt crisis these companies are feeding on that we now see unfolding across Britain.

“Improving access to alternative credit like credit unions and social finance is vital, but ultimately this report highlights why – with 9 million people in the UK overindebted and interest rate rises on the horizon- Britain cannot afford complacency when it comes to helping people make ends meet. The Government must push the Financial Conduct Authority to act quicker to bring these companies to account, addressing not just the cost of a loan but how decisions to loan are made and their attempts to avoid regulation by lengthening the timeframe of a loan.

“They must also recognise payday lenders are not the only legal loan sharks preying on the British public- the problems with log book loans and debt management companies show we need a complete overhaul of consumer credit in this country so that we halt the spiral of debt so many find themselves caught in as a result of borrowing in this way.”

Notes:

Details of the Competition and Markets Authority’s Interim Findings can be found here: https://www.gov.uk/government/news/payday-borrowers-paying-the-price-for-lack-of-competition

 

Labour Slams Government Inaction as Regulator Highlights Dangers of Logbook Loans

Responding to customer research published today by the Financial Conduct Authority Stella Creasy MP, Shadow Minister for Competition and Consumer Affairs said:

“Less than a month ago, Labour proposed giving borrowers in Britain protection from Log book loans by outlawing the Bill of Sale Agreements which these companies use to take advantage of people in need of credit. We wanted to protect consumers against this type of legal loan sharking- but yet again the Government ignored our warnings and voted down this proposal.

“Time and again this Government has been too slow in recognising and reacting to dangerous practices in the consumer credit market. This research makes a damning case to show there’s more than one toxic type of company out there causing serious damage to the finances of families- those struggling with these loans will rightly be asking why the Government continues to fail to get a grip of these problems and not to listen to either us, the Citizens Advice Bureau or the customers of these companies themselves who are being exploited.”

 

Notes:

1.       The Financial Conduct Authority published research today, some of the main findings were that-

Consumers:

  • often have few alternative sources of large amounts of credit
  • do little or no shopping around
  • are often unclear about important loan aspects, e.g. the total cost of the loan,  additional charges and the fact that ownership of the vehicle transfers to the lender
  • say they are often subject to aggressive and threatening behaviour if they experience repayment difficulties
  • many experienced payment difficulties at some point, suggesting firms may not be carrying out adequate affordability checks.

Lenders:

  • have high APRs, typically 400% or more, plus additional fees and charges
  • appear to rarely carry out affordibility checks
  • online lenders mainly consider the value of the car when granting a loan rather than the individual’s ability to pay

http://www.fca.org.uk/news/fca-says-logbook-lenders-must-raise-standards

2.       At report stage of the Consumer Rights Bill Labour proposed a New Clause to limit the use of Bill of Sale to underwrite Logbook loans, provide modern consumer credit protection and protect third parties who buy cars in good faith. On 13 May 2014the Government MPs voted against the changes.

http://www.publications.parliament.uk/pa/cm201314/cmhansrd/cm140513/debtext/140513-0003.htm

3.       Since 1st April the Financial Conduct Authority took over regulation of the Consumer Credit Market including Log Book Loans

http://www.fca.org.uk/news/fca-takes-over-regulation-of-consumer-credit-firms

4.   A logbook loan is a form of credit where a legal document called a Bill of Sale is used to  secure a loan on a debtor’s vehicle. The lender retains legal ownership of the car for the life of the loan and the structure of the loan means that the lender can repossess the debtor’s vehicle without a court order. A lender is also able to take possession of the vehicle from a person who purchases the vehicle from the original debtor if there is an outstanding loan against it.

Labour calls on FCA to name the date on payday loan cost cap as Which? research reveals rip off fees

Responding to the findings of a Which? investigation into default fees charged by payday lenders Stella Creasy, Shadow Minister for Competition and Consumer Affairs said:

“Today’s figures from Which? show the extent of fees being charged in the payday loan market on top of their excessive interest rates. We know that trying to pay off one of these loans is the main reason young Brits are struggling to make it to the end of the month and little wonder given how expensive they can be.

This shows why Labour was right to demand a cap not just on interest rates but all the charges these companies can apply. Having secured the power for the Financial Conduct Authority from the Government to implement a total cost cap on payday loans, it’s clear this can’t come soon enough. It is time the FCA set out their timetable for this measure so we can protect borrowers and ensure Britain has a consumer credit market which works for everyone.” 

 

Summary of Which? investigation into default fees charged by payday lenders:

Payday Lender Fee charged for failing to repay the loan on the due date (£s)
Wonga.com 30
MoneyShop.tv 29
MyJar.com (a) 25
Speedydosh.com 25
247moneybox.com (b) 20
Minicredit.co.uk (c) 20
MrLender.com (d) 20
Quid24.com 20
Swiftmoney.co.uk (e) 20
Wagedayadvance.co.uk 20
Microlend.co.uk 15
Paydayexpress.co.uk 15
PaydayUK.co.uk 15
MyMate.co.uk 12
Quickquid.co.uk 12
Safeloans.co.uk (f) 12
Zebit.com (g) 12
 

More information about the campaign by Which? on payday loan fees can be found on their website: http://www.which.co.uk/campaigns/money-payday-loans-overdrafts/know-the-issue/

Fantasy Film Released as Wonga claim Legal Loansharking is a Wonderful Life

moneyshop1Commenting on the release of a promotional film for legal loanshark Wonga today, Stella Creasy MP Labour’s shadow minister for Competition and Consumer Affairs said;

“Wonga may be able to find twelve people to say they are happy customers, I can find 1200 who are not and who are now paying the price for borrowing from these legal loan sharks. They like to claim they are different from other payday lenders, but the truth is they are all as bad as each other. That isn’t my review, but the outcome of the Office of Fair Trading investigation which found the entire payday lending industry in Britain was out of control. That’s why they have written to 50 legal loan sharks including Wonga about their behaviour. If Wonga really want to be transparent about how they make a million pounds a week from lending to hard pressed Brits, they should own up to being warned by the OFT and spell out what they are doing to put that right, rather than filling our cinema screens with such fiction.”

“Families struggling with the cost of living crisis need protection from their propaganda. It’s bad enough that you can buy a Wonga babygrow at the football clubs they sponsor. Parents taking their children for a well deserved night out at the flicks don’t want their kids subjected to this toxic marketing – I hope at the very least those screens that do show this film give it an 18 rating to reflect the potentially harmful nature of this footage.”

“The real story here is Britain’s broken consumer credit market- The Government may be happy to go along with this fiction but we are not. Only Labour is committed to reforming this industry by introducing caps on the cost of credit to limit the debt these loans can cause and making consumer credit work for everyone.”

Notes

1. The Office of Fair Trading referred the entire payday lending market to the Competition Commission in June this year following a  review into compliance with its responsible lending guidance

-          You can view the report in full by visiting the OFT website

-          Half (48%) of payday loan users have taken out credit that it turned out they couldn’t afford to repay

-          A third (29%) of payday loan users have taken out credit that they knew they couldn’t repay and in the last 12 months of 2012, more than half (57%) of people with payday loans missed a payment and incurred charges because of missed of bounced repayments.

-          The Office of Fair Trading referred the market to the CC for investigation in June this year. The CC is now carrying out its own comprehensive investigation, to see if there are any features of this market(s) which prevent, restrict or distort competition and, if so, what action might be taken to remedy them. For more information visit the competition commission website.

2. The Financial Conduct Authority has published its proposals for consumer credit lenders in the FCA rulebook – you can find out more about the proposals in full by visiting the FCA website.

-          The consultation closes on the 3rd December 2013 and you can take part by reading the proposal document by visiting the website.

-          Martin Wheatley from the FCA has said the regulator is looking at a total cost cap but currently does not have the market data to assess where to place the cap level.

3. Wonga announced earlier this year that they are now making more than £1m a week in profit – a 36% increase on 2012. You can read a response from Stella Creasy MP by visiting the website.

4. The Sharkstoppers campaign pack contains campaign ideas for making local communities legal loanshark free zones – It can be downloaded from Stella Creasy’s website and has been circulated to campaigners across the country. You can download the pack by clicking here 

5. Stella Creasy MP has been campaigning for caps on the cost of credit since 2010 and now leads on the issue as part of Labour’s shadow Business, Skills and Innovation team. You can find more details on the Sharkstoppers campaign hereFor more information visit Stella Creasy MP’s website at www.workingforwalthamstow.org.uk or call Jon Chambers on 020 8521 1223

Government Lets Legal Loan Sharks Slip Through The Net Again says MP as FCA Dodges Credit Caps Question

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Responding to the proposals outlined for consumer credit lenders in the Financial Conduct Authority’s rulebook, Stella Creasy MP again warned time was running out to tackle the problem legal loan sharks cause and called for Government to introduce a total cost cap on credit. Speaking about the proposals Stella said:

“Whilst I welcome the focus of the FCA on legal loan sharks and their research into capping, the lack of real action again today on the actual cost of credit itself will be a blow for many caught in a spiral of debt due to payday lenders. The FCA’s hands are being tied by a Government that consistently speaks out against what most other countries have done to tackle legal loan sharks by opposing capping what these companies can charge. With 80% of these loans for just putting food on the table, or a roof over their heads, we know people are borrowing for everyday essentials not luxuries. Price caps would make these loans more affordable and so less like to cause debt problems in themselves. The measures the FCA announced today may go some way to limiting some of the damage being done, but they won’t prevent them like capping would. The FCA today have said they don’t have the data from lenders to set a cap – and that’s why the Government must step in before April 2014 to make it a requirement for these companies to work with the FCA in setting a proportionate cap. That’s why Labour is committed to introducing a total cost cap- and why it’s wrong that the government keeps ruling it out.”

Commenting on the FCA proposals to limit rollovers Stella said:

“An OFT report into the industry has shown how only 11% of lenders assess the affordability of a loan the first time the loan is rolled over – with people using multiple lenders to pay off multiple loans, whilst a third of loans are repaid late or not repaid at all. Limiting rollovers within individual firms will do little to stop this payday tourism, as borrowers move from company to company taking out loans to cover existing ones.”

Commenting on plans to limit the ability of companies to use continuous payment authorities Stella said:

“It’s right that we reform how CPAs are used, but limiting the number of times they can be used doesn’t deal with the amount the firms are taking from bank accounts which is the real source of problems. Lord Freud says the Government is worried about companies exploiting universal credit payments to make sure they get their money – these proposals won’t prevent that, and if anything could make it more likely these firms will debit bank accounts early to ensure they get their fees. That ministers think the way in which money is taken is the problem- rather than the amount itself- shows how hopelessly out of touch they are on this issue.  Jo Swinson calls capping the ‘warm and fuzzy’ approach, failing to understand it’s the cost of credit itself which causes the problems in the first place to consumers.”

She continued to discuss the problems with the market:

“The case for change is overwhelming -legal loansharks are making profits of more than £1m a week as British consumers struggle with the rising cost of living. Report after report shows this industry is out of control – and the on-going investigation by the Competition Commission into the entire industry shows tinkering around the edges using rulebooks and guidance will do little to fundamentally overhaul this industry. For the past 3 years, the Office of Fair Trading, the Government and payday lenders themselves have all promised to take action on this industry following repeated warnings continually falling on deaf ears. Yet 3 years later, and every rule in the book still broken, legal loansharks continue to make 50% of their profits on loans rolled over or refinanced at least once and families are being forced to borrow for basics at rates of over 5,000%. Those who represent these lenders, such as the Consumer Finance Association, talk tough – claiming that the problem is just a few bad apples. Yet time and time again they refuse to debate with me the merits of making credit more affordable to prevent people getting into difficulty in the first place.”

Speaking about the Sharkstoppers’ campaign Stella said:

“The announcements today show just why Sharkstoppers’ campaigners fought to give the FCA the power to cap the cost of credit from April 2014 – so that the FCA could act to protect consumers and prevent debt problems. Yet without the support of Government to do this they are stuck, unable to really take on a litigious and aggressive industry which is protecting its profit margins. That’s why we are responding to the FCA’s consultation reaffirming our warning that without the FCA using its power to put a cap on the total cost of credit, legal loansharks will continue to be written blank cheques – making millions off hard-pressed Britons. Alongside a cap, the Centre for Responsible Credit and other organisations have called on the FCA to implement real-time credit checking across the industry – forcing companies to take responsibility for the lending they provide.

Only tough action by the FCA and the Government can stop the next 3 years being easy pickings for the legal loansharks – preventing people from getting into a damaging cycle of debt at the hands of these companies by giving them access to affordable credit, rather than just sitting by and trying to limit the damage they cause. British consumers deserve better – access to affordable and responsible credit, and action now can give them protections that others around the world enjoy. Lower levels of personal debt, lower levels of illegal lending and greater access to affordable credit. We can’t afford not to cap.”

Ends.

Notes

1. The FCA published its proposals for consumer credit lenders in the Financial Conduct Authority rulebook – you can find out more about the proposals in full by visiting the FCA website.

–          The consultation closes on the 3rd December 2013 and you can take part by reading the proposal document by visiting the website.

–          Martin Wheatley from the FCA has said the regulator is looking at a total cost cap but currently does not have the market data to assess where to place the cap level.

2. The Office of Fair Trading launched its review into compliance with its responsible lending guidance in February 2012.

–          You can view the report in full by visiting the OFT website

–          Half (48%) of payday loan users have taken out credit that it turned out they couldn’t afford to repay

–          A third (29%) of payday loan users have taken out credit that they knew they couldn’t repay and in the last 12 months of 2012, more than half (57%) of people with payday loans missed a payment and incurred charges because of missed of bounced repayments.

–          The Office of Fair Trading referred the market to the CC for investigation in June this year. The CC is now carrying out its own comprehensive investigation, to see if there are any features of this market(s) which prevent, restrict or distort competition and, if so, what action might be taken to remedy them. For more information visit the competition commission website.

3. The Sharkstoppers campaign pack contains campaign ideas for making local communities legal loanshark free zones – It can be downloaded from Stella Creasy’s website and has been circulated to campaigners across the country. You can download the pack by clicking here 

4. Stella Creasy MP has been campaigning for caps on the cost of credit since 2010. You can find more details on her campaign hereFor more information visit Stella Creasy MP’s website at www.workingforwalthamstow.org.uk or call Jon Chambers on 020 8521 1223.