The payday lender that charged 16,734,509.4%

The Guardian Money

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.”

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Money-web.co.uk Expand UK Debt Solutions Business

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.

free_professional_pension_review_image4_contact_usMoney-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.

Food Banks Expect to Feed 15,000 This Christmas

Photograph: Christopher Thomond for the Guardian

Toby Helm and Kate Kellaway

Christmas food handouts double as millions face ‘financial precipice’

Debt-ridden households could kill off economic recovery when interest rate rises, says Resolution Foundation

Volunteers at food banks aim to tackle ‘hidden hunger’ – that affecting people who refuse to accept free food because they think it carries a stigma.

The number of people who will turn to food banks for sustenance is expected to double this Christmas, as a new report warns that millions more families face a financial “precipice” due to high personal debts, flatlining wages and future interest rate rises.

With three new food banks opening every week in the UK, the charity that oversees Britain’s 292 emergency outlets, the Trussell Trust, says it expects to feed 15,000 people over the Christmas fortnight alone, almost double the number last Christmas.

At the same time, a study published by the Resolution Foundation, an independent thinktank, says millions of households with low to middle incomes will be pushed close to the edge if they are unable to reduce their debts, including mortgages, before the cost of borrowing returns to more normal levels.

Volunteers who are giving up part of their holiday to help run food banks – from students to pensioners and representatives of local businesses – will be out in record numbers across Britain this week, distributing food to those who cannot afford a decent Christmas. Their aim is also to tackle “hidden hunger” – that affecting people who refuse to accept free food because they think it carries a stigma.

The Resolution Foundation report exposes how millions of families, unable to pay off debts, are facing a crisis if interest rates are pushed up in coming years to keep inflation down.

Matthew Whittaker, senior economist at the Resolution Foundation and the author of the report, On Borrowed Time?, said: “Debt levels are a major concern for a substantial number of families struggling under a burden of repayments, even as things stand.

“There is a very real prospect that borrowing costs will rise more quickly than incomes and that lenders will become less flexible over repayments. Many households are already in a very exposed position, even with interest rates on the floor, so even small changes in the financial outlook could have a dramatic effect.

“All this threatens to make the burden unbearable for many debt-loaded households, particularly those on lower incomes. This would be dangerous at any time, but it looks especially so in the current era of frozen wages, under-employment and faltering living standards.”

Figures published last week by the Bank of England showed that 3.6 million households – 14% of the total – now spend more than a quarter of their income on debt repayment, including mortgage costs. The Bank also says that up to 1.4 million households (12% of those with mortgages) are in special measures with their bank, having asked for temporary deals from their lenders.

The RF report shows that debt is distributed unevenly across income groups, with those in the poorest 10% of households spending on average 47% of their monthly income on debt repayments, compared with 9% for the richest 10%.

It also highlights how 2.4 million households with a mortgage (one in five) are spending more than 25% of their gross income on mortgage repayments alone – at a time when interest rates are at just 0.5%. Before the debt boom of the 2000s, only 15% of households were in this position, even when interest rates were as high as 7%.

The debt problem is likely to be all the more serious for struggling families because wages and household incomes are likely to stagnate over the next few years. The RF suggests that the average full-time wage will rise no higher in real terms than its 2000 level of £26,200 until at least 2017 – down from a peak in 2009 of £29,000.

Few economists expect interest rates to rise in the near future – almost certainly not in 2013 – but after that the Bank of England would be under pressure to raise rates to see off the threat of inflation were the economy to show signs of recovery.

The report notes the delicate balance that the Bank – under its newly appointed governor, Canadian Mark Carney – will have to strike between controlling inflation through raising interest rates and creating a risk of mass mortgage default and increased bankruptcy rates, which could combine to derail any nascent recovery in the economy.

The report says: “The prospect of interest rates rising and forbearance [special arrangements people set up with banks to help them through] being removed while incomes continue to stagnate heightens the risk of future defaults. Such an outcome may yet slow down, or stall, economic recovery: at some tipping point the micro issue becomes a macro one. In this eventuality, we may find that the green shoots of recovery just sprouting in the UK economy prove to be living on borrowed time.”

Nine million use credit cards and payday loans to cover monthly household bills

Nine million use credit cards and payday loans to cover monthly household bills

By Tara Evans, 12 September 2012  Reproduced from www.thisismoney.co.uk

Almost a fifth of people are using costly forms of credit each month to help pay household bills, according to new research.

Some 7.5million people use credit cards with a further million turning to controversial payday lenders, according to estimates by bank Santander.

The figures signal a trend of households to turning to expensive forms of credit that add to their financial squeeze when the times comes to repay the money.
Debt: Millions of people are turning to high forms of credit to help pay monthly household bills

Debt: Millions of people are turning to high forms of credit to help pay monthly household bills

Typical credit cards interest rates are about 19 per cent (APR), but more worrying are payday loans which often charge eye-watering rates of about 4,000 per cent.

The short term loans are designed to bridge the financial gap before payday but if people are unable to repay they face extortionate levels of interest.

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The amount being borrowed each month adds up to £3.6million, or an average £259 for each borrower, according to the research.
There are also 4.2million people that turn to lower cost borrowing, Santander claimed, with around 17 per cent of those who borrow to make bill payments dipping in to an arranged overdraft.

Reza Attar-Zadeh, banking director at Santander, said: ‘In an ideal world, household bills should be one of the first costs to be covered when payday arrives, but as the research highlights, this isn’t always possible.

‘The cost of living is going up, driven in part by the rising cost of household bills, and as a result, millions of people are regularly borrowing money to make ends meet which cannot be sustained in the long-run.’

The research also revealed that despite 28 per cent of people looking into alternative payment sources to help cover bills, only 32 per cent regularly check for cheaper deals on services like utilities or TV subscriptions.

While only a quarter of people bother to check that they have sufficient funds in their account by scheduling bills or direct debits just after payday.

Younger bill payers are more likely to borrow money to cover bills, with 38 per cent of people aged 18-34 doing so.

This is compared to 30 per cent of those aged 35 – 54 and 17 per cent of over 55s.

More people in London use loans to cover bills than anywhere else in the UK, with 33 per cent doing this in an average month.

In contrast, the lowest is the North East, South West and West Midlands where just 22 per cent are doing so.

Read more: http://www.thisismoney.co.uk/money/cardsloans/article-2202122/Nine-million-use-credit-cards-payday-loans-cover-monthly-household-bills.html#ixzz26KxrJhH1

Personal debt: We’ll never pay it off, say one in three

Fewer than one in 10 people over 30 have never owed any money to anyone, researchers found, even when they stripped out mortgages from the picture. Eight in 10 are still indebted, and the average response to a question asking them to rate their financial stability was that it was “fairly bad”.

Mark Pearson from myvouchercodes.co.uk, which carried out the research, said: “Without a mortgage thrown in to the mix, to see that so few people over 30 hadn’t experienced debt was a bit of a shock.

“It’s best to avoid debt at all costs if possible, as what starts as borrowing a few hundred pounds on a credit card can quickly escalate into loans, overdrafts and more. Always be wise when it comes to borrowing and only ever do it if you know you’ll realistically be able to pay the money back.”

The company asked respondents to its survey how long they felt they would owe the money for. Nearly a third (32pc) felt that they would continue to owe it indefinitely, with 27pc suggesting that they would owe it for the foreseeable future.

Those respondents who had adult children themselves were asked if their children were in debt, and nearly half said yes, a third were unsure, and only 23pc could say a firm no.

Recent figures from the Office for National Statistics show that the ratio of consumer debt to disposable income has risen for the first time since 2008, and the Consumer Credit Counselling Service, a charity, suggests that this will get worse in the coming months.

The charity also said that people were increasingly turning to payday loans to fill a gap in their income.
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