09-04-2013, 07:39 PM
More like Grandpa (Private Godfrey) from Dad's Army actually.
On tonights news, one borrower on social security, had borrowed £200.00. Six months later she had paid over £2000 back, but still owed the original £200. She hadn't relaized that the loan company could take the money right out of her bank account every month, as soon as it was credited with her social security payment. There is nothing she can do to bring the payments to a halt. It leaves her almost penniless each month.
This is an absolute ongoing disgrace, where bandit firms can impose interest rates as high as 4214% and others regularly 2000+%.
I've been around awhile and so I remember the days when these sort of practices were not just illegal, but were the sole preserve of organized crime families.
Haven't we come a long way in 40 years....
But at least, the government get their share via corporation tax. Bless.
So the question asked below "what took [the OFT) so long" really does need asking.
A cynic might say that bandit business sectors are given 10 years free rule, after which they are gradually reined in. In this case, the power to cap interest rates is the key one.
But will it happen?
By Ian CowieYour MoneyLast updated: March 6th, 2013
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What took them so long? That's the first question prompted by the [url=http://www.oft.gov.uk/]Office of Fair Trading (OFT) announcement that it has found "widespread irresponsible lending" in the payday loans racket. As statements of the bleedin' obvious go, this is a corker.
It is to be hoped that very few readers of these pages will have personal experience of this usurious form of credit. So it is worth pointing out that one of the biggest lenders in this sector charges an annual percentage rate (APR) of 4,214pc. Yes, really.
Such eye-stretching interest rates are only bearable for the briefest periods before compound interest crucifies the borrower. Payday lenders used to argue that their best defence was in their name; these loans were only meant to last until the next pay day, when even sky-high APRs resulted in reasonable costs for short-term credit.
Now the OFT has found that half of payday lenders' revenue is derived from rolled over or refinanced debts which prove ruinous for borrowers. Put simply, those who remain in the red for longer than a few weeks, may never escape. That means many debtors in this £2bn market are soon in no position to shop around for better value.
So the OFT is quite right to propose refering the payday lending market to the Competition Commission and to call for tougher curbs to be imposed by the Financial Conduct Authority (FCA), which begins work next month. As the OFT drily observes: "The FCA will have significant powers and resources beyond those available to the OFT, including powers to cap interest rates and to impose a ban or a limit on the number of rollovers lenders may offer."
However, before it does so it should remember that many borrowers only took out payday loans because they could not raise credit from conventional lenders. Firmer financial regulation of high street banks displaced demand and created a new market lower down the food chain. Hobbling payday lenders with new restrictions will prove popular but may also drive desperate borrowers into the arms of loans sharks.
The fundamental problem remains that too many people are following the Government's lead and living beyond their means. One reason is that it is easy to borrow but difficult to save.
For example, it takes minutes to obtain a payday loan but hours to start a savings scheme, such as a pension. One of the unintended effects of financial regulation has been to replace expensive saving schemes with even more expensive debts. The FCA must make reversing that trend a priority.
On tonights news, one borrower on social security, had borrowed £200.00. Six months later she had paid over £2000 back, but still owed the original £200. She hadn't relaized that the loan company could take the money right out of her bank account every month, as soon as it was credited with her social security payment. There is nothing she can do to bring the payments to a halt. It leaves her almost penniless each month.
This is an absolute ongoing disgrace, where bandit firms can impose interest rates as high as 4214% and others regularly 2000+%.
I've been around awhile and so I remember the days when these sort of practices were not just illegal, but were the sole preserve of organized crime families.
Haven't we come a long way in 40 years....
But at least, the government get their share via corporation tax. Bless.
So the question asked below "what took [the OFT) so long" really does need asking.
A cynic might say that bandit business sectors are given 10 years free rule, after which they are gradually reined in. In this case, the power to cap interest rates is the key one.
But will it happen?
Quote: OFT cracks down on payday loans: what took them so long?
By Ian CowieYour MoneyLast updated: March 6th, 2013
[/url]
What took them so long? That's the first question prompted by the [url=http://www.oft.gov.uk/]Office of Fair Trading (OFT) announcement that it has found "widespread irresponsible lending" in the payday loans racket. As statements of the bleedin' obvious go, this is a corker.
It is to be hoped that very few readers of these pages will have personal experience of this usurious form of credit. So it is worth pointing out that one of the biggest lenders in this sector charges an annual percentage rate (APR) of 4,214pc. Yes, really.
Such eye-stretching interest rates are only bearable for the briefest periods before compound interest crucifies the borrower. Payday lenders used to argue that their best defence was in their name; these loans were only meant to last until the next pay day, when even sky-high APRs resulted in reasonable costs for short-term credit.
Now the OFT has found that half of payday lenders' revenue is derived from rolled over or refinanced debts which prove ruinous for borrowers. Put simply, those who remain in the red for longer than a few weeks, may never escape. That means many debtors in this £2bn market are soon in no position to shop around for better value.
So the OFT is quite right to propose refering the payday lending market to the Competition Commission and to call for tougher curbs to be imposed by the Financial Conduct Authority (FCA), which begins work next month. As the OFT drily observes: "The FCA will have significant powers and resources beyond those available to the OFT, including powers to cap interest rates and to impose a ban or a limit on the number of rollovers lenders may offer."
However, before it does so it should remember that many borrowers only took out payday loans because they could not raise credit from conventional lenders. Firmer financial regulation of high street banks displaced demand and created a new market lower down the food chain. Hobbling payday lenders with new restrictions will prove popular but may also drive desperate borrowers into the arms of loans sharks.
The fundamental problem remains that too many people are following the Government's lead and living beyond their means. One reason is that it is easy to borrow but difficult to save.
For example, it takes minutes to obtain a payday loan but hours to start a savings scheme, such as a pension. One of the unintended effects of financial regulation has been to replace expensive saving schemes with even more expensive debts. The FCA must make reversing that trend a priority.