Most of us know that payday loans can be a horrifically expensive way to borrow money, with the likes of Wonga.com charging interest rates of 4,000% APR or more. But if you thought that was as bad as it gets, take a look at the loan agreement sent to Adam Richardson and the stated APR: a mind-boggling 16,734,509.4%.
That is not a misprint. His contract really does state that the annualised interest rate on his loan is in excess of 16 million per cent.
Richardson, 25, freely admits he was desperate for cash at the time to fund his “excessive” alcohol and cannabis usage. Having exhausted other sources of money, he went online and took out an £80 loan from a company called Capital Finance One (not to be confused with credit card giant Capital One).
His contract shows he agreed to borrow the money for 10 days and then pay back a total of £111.20, with various charges coming into play if he missed the repayment date.
Cases such as Richardson’s will intensify calls for a cap on the total cost of credit, to prevent some of the problems that campaigners say payday lending causes.
Earlier this month the Office of Fair Trading gave the leading 50 payday lenders 12 weeks to change their business practices, after it uncovered widespread evidence of irresponsible lending and breaches of the law.
Stella Creasy, the Labour MP who has been lobbying for better regulation of the sector, says: “It’s a great example of the fact that we are one of the few countries in the world where you can charge what you like to lend people money – with all the consequences that come as a result.”
Richardson forwarded a copy of his agreement to Guardian Money because, he says, he wants people to be aware that while media reports often refer to payday lenders charging four-figure rates, below the radar there are less high-profile lenders whose rates are much higher.
He claims that Wonga, the best-known payday lender, with a stated representative APR of 4,214%, “seems almost angelic” compared to the firm he borrowed from (he repaid the loan). Capital Finance One has since changed its name and now trades as CFO Lending from a base in Woodford Green, north-east London – not far from Creasy’s Walthamstow constituency.
It seems almost inconceivable that an APR can reach such a high level, so Guardian Money sent the agreement to an expert in the field, who told us: “I’ve checked, and the APR in your case study’s contract is correct.”
Richardson, who is now “clean and sober”, says he took out the loan in April 2011. He says that at the time “my excessive use of alcohol and cannabis demanded quite a bit of cash. I’d exhausted all the streams of money I had from other sources.”
Richardson adds: “I feel that payday loan companies are targeted primarily at this vulnerable sector of the market.
“They tend to be desperate individuals with little financial security and poor credit histories who are at the point where, due to crisis or addiction, they are not likely to be in a fit state to sign a contract, or even read and understand one.”
The Financial Conduct Authority, the new City watchdog taking over from the Financial Services Authority, will have the power to set an interest rate cap on payday loans, and restrict their duration and the number of times they can be rolled over. But a decision on whether this will be invoked will only be made in 2014, at the earliest.
Payday loan companies have argued that part of the problem is that the APR – the annual percentage rate, which firms are obliged to display – was originally designed to compare the cost of loans or card balances over several years. On its website Wonga says: “The equation not only multiplies the actual period of interest up to a year’s duration, but also compounds it, assuming interest-on-interest many times over. The result is a grossly distorted number that bears no relation to the actual interest involved.”
Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), which represents many payday lenders, told Money: “Clearly we do not condone APRs at this rate, but it is important to distinguish between the price of the loan and the annual interest on it. Nobody will ever pay that annual rate of interest on a short-term loan from a CFA member, as their loans cannot be extended more than three times.”
Money emailed and phoned CFO Lending – which is not a CFA member – for an explanation, but it did not respond. Its website displays a representative APR of 4,414%.
Richardson, who lives in Durham and is a student, declared himself bankrupt in March 2012 after amassing unsecured debts of around £25,000, and says he feels lucky compared with others. “I’m OK-ish today – I’m to be discharged from bankruptcy this Thursday and have some hope for the future. I certainly accept a large amount of responsibility for my side of things and I totally agree I should have restrictions placed on me, but it’s just worrying to know that companies like this exist and seem quite hidden.”
A quarter of Conservative MPs are private landlords, according to research for an independent campaign group.
Pricedout, a group which campaigns on behalf of first-time house buyers, found that 83 out of 305 Conservative MPs are supplementing their income through private tenants.
Only 12.5 per cent of Labour MPs and 15 per cent of Liberal Democrats own properties that they rent out.
Across the parties, more than half of the homes owned were in London, where private rents are highest.
The group found several examples of MPs owning more than one rental property. James Clappison, Tory MP for Hertsmere, topped the charts, having been found to own 26 homes he rented out across east Yorkshire.
‘Not only do MPs enjoy taxpayer-funded second homes, many of them also have a portfolio of rented houses too,’ said Katy John, a spokesperson for Pricedout. ‘Many first-time buyers are trapped in the private rented sector, 94 per cent of whom would like to buy their own home.
‘Tenants in this country face some of the worst levels of housing security in Europe. First-time buyers desperately need house prices to fall to more affordable levels, but landlord MPs at the very top of the property ladder have a vested interest to not let this happen
Money-Web.co.uk are continuing to expand their range of services in the UK by now offering their debt solutions to the people of Scotland.
Money-web are pleased to be working with a leading, licensed provider of “Protected Scottish Trust Deeds”, similar in Scottish law to the I.V.A or Individual Voluntary Arrangement in England & Wales. Helping people get out of debt by agreeing an affordable monthly payment with their creditors and often writing off thousands of pounds of their outstanding debts.
Money-web.co.uk will be offering these services through Mackenzie Stewart Ltd of Glasgow who will also be able to offer customers advice on Sequestration or Managing Bankruptcy in Scotland and a range of related services.
The scale of unpaid tax now outstrips the entire deficit. Forcing the elite to pay up is a matter of both justice and necessity
Writes Seumas Milne
in The Guardian
‘Only the little people pay taxes,” the late American corporate tax evader Leona Helmsley famously declared. That’s certainly the spirit of David Cameron and George Osborne’s Britain. Five years into the crisis, the British economy has just edged out of its third downturn, but construction is still reeling from government cuts and most people’s living standards are falling.
Those at the sharp end are being hit hardest: from cuts to disability and housing benefits, tax credits and the educational maintenance allowance and now increases in council tax while NHS waiting lists are lengthening, food banks are mushrooming across the country and charities report sharp increases in the number of children going hungry. All this to pay for the collapse in corporate investment and tax revenues triggered by the greatest crash since the 30s.
At the other end of the spectrum though, things are going swimmingly. The richest 1,000 people in Britain have seen their wealth increase by £155bn since the crisis began – more than enough to pay off the whole government deficit of £119bn at a stroke. Anyone earning over £1m a year can look forward to a £42,000 tax cut in the spring, while firms have been rewarded with a 2% cut in corporation tax to 24%.
Not that many of them pay anything like that, even now. The scale of tax avoidance by high-street brand multinationals has now become clear, in no small part thanks to campaigning groups such as UK Uncut. Asda, Google, Apple, eBay, Ikea, Starbucks, Vodafone: all pay minimal tax on massive UK revenues, mostly by diverting profits earned in Britain to their parent companies, or lower tax jurisdictions via royalty and service payments or transfer pricing.
Four US companies – Amazon, Facebook, Google and Starbucks – have paid just £30m tax on sales of £3.1bn over the last four years, according to a Guardian analysis. Apple is estimated to have avoided over £550m in tax on more than £2bn worth of underlying profits in Britain by channelling business through Ireland, according to a Sunday Times analysis, while Starbucks has paid no corporation tax in Britain for the last three years.
The Tory MP and tax lawyer Charlie Elphicke estimates 19 US-owned multinationals are paying an effective tax rate of 3% on British profits, instead of the standard rate of 26%. It’s all entirely legal, of course. But taken together with the multiple individual tax scams of the elite, this roll call of corporate infamy has become an intolerable scandal, when taxes are rising and jobs, benefits and pay being cut for the majority.
Not only that, but collecting the taxes that these companies have wriggled out of would go a long way to shrinking the deficit for which working- and middle-class Britain’s living standards are being sacrificed. The total tax gap between what’s owed and collected has been estimated by Richard Murphy of Tax Research UK at £120bn a year: £25bn in legal tax avoidance, £70bn in fraudulent tax evasion and £25bn in late payments.
Revenue and Customs’ own last guess of £35bn has been widely recognised as a serious underestimate. But even allowing for the fact that it would never be possible to close the entire gap, those figures give a sense of what resources could be mobilised with a determined crackdown. Set them, for instance, against the £83bn in cuts planned for this parliament (including £18bn in welfare) – or the £1.2bn estimated annual benefit fraud bill – and you get a sense of what’s at stake.
Cameron and Osborne wring their hands at the “moral repugnance” of “aggressive avoidance”, but are doing nothing serious about it whatever. They’ve been toying with a general “anti-abuse” principle. But it would only catch a handful of the kind of personal dodges the comedian Jimmy Carr signed up to, not the massive profit-shuffling corporate giants have been dining off.
Meanwhile, ministers are absurdly slashing the tax inspection workforce, and even introducing a new incentive for British multinationals to move their operations inbusiness to overseas tax havens. The scheme would, accountants KPMG have been advising clients, offer an “effective UK tax rate of 5.5%” from 2014 (and cut British tax revenues into the bargain).
It’s not as if there aren’t any number of measures that would plug the loopholes and slash tax avoidance and evasion. They include a general anti-avoidance principle (of the kind the Labour MP Michael Meacher has been pushing in a private member’s bill) that would outlaw any transaction whose primary purpose was avoidance rather than economic; minimum tax (backed even by the Conservative Elphicke); and country-by-country financial reporting, and unitary taxation, to expose transfer pricing and limit profit-siphoning.
The latter would work better with international agreement. But there is already majority support in the European Union, and it is governments in countries such as Britain – where the City is itself a tax haven – that are resisting reform. When you realise how closely the tax avoidance industry is tied up with government and drawing up tax law, that’s perhaps not so surprising.
But when austerity and cuts are sucking demand out of the economy, fuelling poverty and joblessness and actually widening the deficit, the need to step up the pressure for corporations and the wealthy to pay their share as part of a wider recovery strategy couldn’t be more obvious.
The target has to shift from “welfare scroungers” to tax dodgers, and the campaign go national. Companies that are milking the country at the expense of the majority are especially vulnerable to brand damage. Forcing them to pay up is a matter of both social justice and economic necessity.
• This article was amended on 31 October 2012. The original said that Apple is estimated to have avoided over £550m in tax on more than £2bn worth of sales. This has been corrected.
From Liberal Conspiracy A new poll (in the USA)shows that the public blame failures in the banking sector for causing the deficit more than they blame overspending.
45% of respondents said “greed and recklessness amongst bankers on Wall Street and in London” was most responsible for the deficit and growing national debt, with 43% blaming “the failure of governments to properly regulate banks and financial institutions”.
‘Over-spending’ options all received significantly lower scores – 28% blamed “overspending on benefits and immigration”; 19% “overspending on the wars in Iraq and Afghanistan” and just 3% blamed “overspending on schools and hospitals”.
Participants in the poll by Greenberg Quinlan Rosner were asked to pick the top two causes of the deficit and growing debt.
Just 6% placed the blame entirely at the feet of overspending, while more than three times as many (19%) exclusively blamed the failures of the banking sector.
While nearly half the population (44%) saw spending as one of the two main causes of the deficit, more than two thirds (69%) saw banking failures as at least one of the top causes.
Even 2010 Tory voters don’t exclusively blame spending. Just 7% picked only spending options in the poll, while 60% identified banking failures as one of the main causes.
James Morris, Director of GQRR’s European Office, said:
Voters take a broad view of the causes of the deficit. It isn’t enough just to control spending – voters also want to know that politicians are willing to change the culture and practices of the banking sector. The government’s failure to move strongly and rapidly in this area is one reason why their promise of ‘short term pain for long term gain’ has begun to sound hollow.”
This poll also shows why banks face such a struggle to rebuild their reputations. Consumers don’t just see bankers as greedy, they think that greed has directly impacted on their lives and their country. To rebuild trust bankers need to be seen to embrace measures that protect the wider economy. Bankers that becomes the champions of change rather than its enemy are poised to do well.
The survey questioned 3,174 respondents and was weighted to be nationally representative. Fieldwork was conducted 13-16 July 2012.
FromTax Reseach UK
The Guardian has reported that Eurozone car sales were down 16% in December.
Now that is possibly because there were two fewer trading days, but that seems unlikely.
What seems likely to me is that people are saving.
Economic recovery is dependent upon four things. One is increased consumer spending. Another is increased net business investment. A third is increased net exports. The last is increased government spending. Those are the four variables in the equation.
What is clear is that consumers are not spending here or abroad. That means business is not investing and exports are not rising.
So it’s all down to government spending. And George isn’t playing.
That’s why we’re still in recession. And why we’ll stay that way too, and the deficit won’t clear and the debt will rise. It’s all rather obvious.
As is the solution.
Unless you’re George.