Monday, 22 January 2007

PayDay Lenders Turn to Ombudsman for Debt Recovery

The Financial Ombudsman may seem to be an unlikely source of assistance for rip-off payday lenders trying to force banks to honour cheques that their customers cannot afford, but the British Cheque Cashers Association (BCCA) - which acts as an industry body for a number of payday lenders - includes details in its Autummn 2006 Newsletter of a payday lender continually re-presenting cheques from its customer to the NatWest (and racking up charges of £60 for the customer in the process) and then complaining to the Financial Services Ombudsman in order to force payment despite this being outside of the Ombudsman's jurisdiction:

"On 12th June we wrote to the Financial Ombudsman Service (FOS) and on 24th June we received a complaint form which we completed and returned on 4th July. On 8th August the FOS asked us to fax a copy of the cheque in question to them. The FOS said that strictly speaking they couldn’t act for us because we were not a customer of NatWest. However, they were willing to give it a try, but if the Bank refused to pay us there was nothing more the FOS could do.

The next day the FOS telephoned to say that NatWest has agreed to pay our claim in full (£160). The caller confirmed that the NatWest would be charged a case fee by the FOS. Two days later we received an “acceptance form” from the FOS which we signed and returned. On 16th August we received a letter from the FOS saying that we will receive settlement direct from NatWest."

Debt on our Doorstep has today reported this matter to the Ombudsman service and asked for their comments.

Lenders Forced to Write-Off Irresponsible Loans

The Observer (Sunday 21st January) reports on action being taken by debt advisors at East Saffordshire Citizens Advice Bureau to force lenders to write-off loans that have been made without due regard to the borrowers' ability to pay.

Examples of cases brought by the CAB include a couple with two children who started off with a loan for £3,500 and ended up owing a total of £30,000 on five loans despite the husband losing his job. £20,000 has now been written off.

A single man given eight secured loans and a mortgage totalling £120,000 by the same bank, and who has a further £155,000 of unsecured loans

Where checks on ability to pay have been inadequate or where consumers have been pestered by banks to take out additional loans despite being clearly unable to afford them, the Citizens Advice Bureau has successfully taken action through the Financial Ombudsman scheme.

In the last six years, Lloyds TSB has been forced to write off six loans made in Burton upon Trent as a result of their lax lending policies, and as a result of the banks investigation into the causes, "two members of the branch have left the organisation".

It should be noted that Lloyds were the subject of a BBC investigation in 2004 that revealed significant problems with their lending policies, and which resulted in the programme makers submitting their files to the Banking Code Standards Board (BCSB) for further investigation. No public response has been made by the BCSB concerning the results from that due to 'confidentiality' agreements that it has with the industry.

Accoring to the most recent quarterly report from the Bank of England, 29% of people in financial difficulties report that this is due to over-commitment rather than the traditional pre-cursors of debt such as unemployment or relationship breakdown. The OFT is shortly due to issue guidance on the 'responsible lending' requirements to be incorporated into the Consumer Credit licensing regime. Debt agencies will be hoping that, as a minimum it contains provisions to make lenders look at the total overall indebtedness of a borrower and to properly assess their ability to repay, prior to making a loan - two things that, on this evidence, the industry is clearly failing to do.

Farepak Scandal - Victims Offered 5p in the £

Administrators investigating the collapse of disgraced hamper club Farepak have issued proposals to provide former savers with only 5p for every £1 lost. Accountants BDO Stoy Hayward have so far received claims worth approximately £40 million from 113,000 customers that lost their savings when the firm went bust last year. On average each customer lost £400, and would receive only £20 in compensation from the plan.

The adminstrators report that Farepak failed to adequately protect the money paid in by savers and did not set up a ring-fenced account to keep it separated from other liabilities on the business and its parent company. The report also shows that Farepak lent its parent company, European Home Retail (EHR), £33 million and that this loan was subsequently defaulted on by EHR - the Directors of which include former CBI boss, Sir Clive Thompson.

In a move which is sure to have created added bitterness, the Directors of EHR are themselves claiming that they are owed money from the business totalling £80,000, although it is highly unlikely that any of them will receive a penny.

Late last year, the DTI's Farepak Response Fund raised £6.8 million for Farepak's customers and agents that had lost their savings and a DTI inquiry is ongoing to learn the lessons for future regulation of the industry.

M.P's Debate Bank Charges

M.P's debated the issue of unlawful bank charges in Parliament last week. Matthew Taylor (Lib Dem), who brought the debate to highlight the £4.5 billion per year rip off, stated:

"Almost all of what is charged is profit, not costs. It is profit at the expense of hard-up customers. It is the biggest bank robbery in Britain, and it involves the banks robbing their own customers, especially their poorest ones."

Support for the call to limit bank charges also came from Jim McGovern (Lab), who raised the problem of multiple charges being made by banks for a single breach.

However, whilst the debate secured an admission of the problem from the Government (Ed Balls, Treasury Minister), the Government has no plans to force banks to refund the excess penalty fees levied on the back of either bank accounts or credit cards, leaving consumers with no other choice at the moment but to take individual cases through the courts.

Bailiffs Sent in Against Royal Bank of Scotland

The Guardian (Saturday 20th January 2007) reports that bailifs were sent into the Royal Bank of Scotland last week as part of Declan Purcell's action against them to recover excessive default charges. Mr Purcell had previously successfully sued the bank in the County Court for over £3,000 in overdraft fees charged against his small business account between 2002 and 2004.

Despite obtaining a judgment against the bank towards the end of last year, Mr Purcell's claim had effectively been ignored by RBS and no acknowledgement of the outstanding amount was ever given to him. Not to be deterred, Mr Purcell then issued a bailiffs warrant via the County Court, and last week the bailifs impounded computers and other office equipment in a London branch of the bank under the terms of a 'walking possession' agreement. This had the desired effect with RBS forced to cough up the cash to prevent the items being taken away.

Monday, 15 January 2007

Interest rate caps back on the agenda around the world

The Irish debate on interest rate caps (see report dated 10th January 2007, on this site) is being repeated across the globe.

In the U.S, The Miami Herald (2nd January) reports on proposals to cap payday lending rates, and the inclusion of a cap at 36% for payday lending to the U.S military:

"Payday loans are marketed as short-term cash advances on the borrower's next paycheck. But previous research has found that the industry depends on repeat business or ''flipped'' loans. In fact, 90 cents of every dollar payday lenders make comes from borrowers who flip into loan renewals five or more times per year. The new report finds the average payday borrower pays back $793 for a $325 loan!

Some states don't allow the practice. They are Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont, West Virginia. All hold their lenders to consumer loan laws, which usually include a double-digit interest rate cap.

Congress recently adopted this approach when the Pentagon sought protections for troops from payday lenders. The Defense Authorization bill President Bush signed in September included a 36-percent interest rate cap on such loans to military families."

Last year Japan voted to tighten the level of its interest rate cap from 29% to 20% to take effect from 2009 and Poland implemented a cap at approx 23%. And this year, Queensland in Australia is considering the introduction of a 48% cap, following the example of New South Wales.

An excellent presentation was given to the recent seminar on regulating high cost credit held by the Griffiths University in Australia by Melanie Spong from the Office of Fair Trading in New South Wales on the history and effects of rate caps. Her evidence revealed that high cost lending in Australia is due to market failure. Rate caps can stimulate markets effectively so that poor customers can get credit at reasonable rates. The speech also reports information about fringe lending in Australia, its lack of advice, and its clients who are often trapped into taking out revolving debt with no hope of ever repaying it.

Yet Provident in their response to the RTE programme in Ireland state:

"Virtually all informed share the UK Government's view that interest rate ceilings would harm the very people they would be designed to help."

Of course, Provident also said that their products were competitively priced but after an 18 month inquiry it was found that the industry was making excessive profits of at least £75 million per year and possibly substantially more. Draw your own conclusions.

Sunday, 14 January 2007

Banks make record profits as customer battle debt

Sunday Mirror, 7 January 2007

Exclusive by Stephen Hayward, Consumer Correspondent

HIGH street banks are set to declare record profits of more than £40BILLION A YEAR - while their hard-up customers plunge deeper into debt.

The astonishing profits - which work out at £112million a day - are up from £34billion the year before.

They come at the expense of customers who pay £5billion a year in overdraft fees and £3billion for controversial payment protection insurance on loans, credit cards and mortgage repayments.

Last night anti-debt campaigners accused the banks of growing rich on the back of spiralling personal debt, which now stands at a record £1.3trillion.

The biggest single winner is HSBC, Britain's biggest bank, which made £13billion last year, up from £11.5billion in 2005.

Halifax Bank of Scotland, accused of ruining Christmas for Farepak customers after failing to increase its owners' overdraft last October, has racked up £5.5billion profits, up from £4.8billion.

The figures are due to be announced over the next two months. They come as millions face bigger home loan bills because of rising mortgage rates.

There has also been a surge in repossessions and personal insolvencies - expected to top 100,000 a year for the first time.

Critics say high street banks have pushed up overdraft charges -which the Office of Fair Trading is investigating - while offering paltry interest rates on accounts.

Further profits have come from financing lucrative takeover deals, switching customers online and closing local branches.

Niall Cooper of the Debt On Our Doorstep pressure group said: "If interest rates go up it is quite feasible the debt bubble will burst."

Stuart Bernau, boss of Nationwide, Britain's biggest building society, said: "It's natural that customers will question whether they are getting good value and service from their banks."

Pula Houghton, senior policy advisor at consumer group Which?, said: "People are being penalised for the smallest transgression."

Britons owe a third of unsecured debt in Western Europe, typically £3,000 in debt - double that of their continental cousins.

HSBC £13bn
RBOS/NatWest £9.2bn
Barclays £7bn
Halifax Bank of Scotland £5.5bn
Lloyds TSB £3.7bn
Abbey £940m
Northern Rock £610m
Alliance & Leicester £553m
Bradford and Bingley £333m

INTEREST rates up to 18.3% on overdrafts - 29.8 per cent on unauthorised ones.
£25 CHARGE for bouncing cheque.
A 5% RISE to 16% on credit card rates.
MONTHLY fees on credit cards.
3% INTEREST on balance transfers.
A £3 CHARGE on credit card cash withdrawals.

Friday, 12 January 2007

Dood Vice Chair Speaks to Housing Associations Conference

The stark reality of doorstep lending was outlined to more than 100 housing officials at a London conference today.

Niall Cooper, Debt on Our Doorstep vice-chairman, urged housing association officials to get into the front rooms of their own tenants.

Speaking at the National Housing Federation 'Financial Inclusion' conference, Mr Cooper pointed out that 20,000 'home lenders' visit people's homes each week.

Urging Housing Associations to provide alternatives to high cost home credit lending, Mr Cooper dismissed the 'common myth' that people without bank accounts were financially illiterate.

He said: "The vast majority are rational, tight budgeting to the penny. They have little assets, income and few savings. It's about juggling. That's what people are doing all the time".

Mr Cooper praised the developed of one-stop shops by housing associations - but said 'active marketing' of the schemes were vital.

He told delegates: "You need to be getting over there into the homes of tenants. You need to hear your tenants' needs * and it's not just about rent. The chance is there to do this at a significant scale."

He concluded: "If you can mobilise assets and financial capability you can provide a huge fillip which few others trying to tackle this problem can actually bring."

Thursday, 11 January 2007

FSA to clamp down further on PPI mis-selling

The Financial Services Authority today announced a further clampdown on PPI mis-selling with a programme of visits to firms and threats of enforcement action.  The FSA also stated that it would review the current rules in relation to PPI sales and in the event that these were proving inadequate to protect consumers, would look at possible changes.

Clive Briault, FSA Managing Director of Retail Markets at the FSA, said:

"Improving sales standards in the PPI market remains a key priority for us and we see it as an indicator of whether firms are treating their customers fairly. Customers should come away from the sale having been given the best possible chance of understanding that PPI is almost always optional, what the policy will and will not cover, and how much it costs. The next phase of our programme will tell us what progress has been made and what further action is necessary."

The FSA is also examining the case for adding PPI to its suite of web-based tables which enable consumers to compare products. The outcome of this latest phase of work will be published during the third quarter of 2007. Meanwhile, in recognition of the wider structural issues that exist in the PPI market, the FSA will continue to work closely with the competition authorities.

BBC Inside Out To Feature Dood in East Mids

The BBC's regional affairs programme, Inside Out (to be broadcast at 7.30pm in the East Midlands, Fri 12th January) will focus on door to door lending companies and feature an interview with Debt on our Doorstep.

The recent Competition Commission investigation into a lack of competition in the door to door lending market highlighted that lenders in this market were making at least £75 million of excess profits each year. However, the Commission did not approve the introduction of a price cap, and its proposed remedies will take at least 18 months to have an impact.

The BBC programme looks at the devastating consequences of borrowing from door to door lenders at extortionate interest rates and reveals how high cost credit can never benefit people on low incomes.

In the programme Debt on our Doorstep reiterate the call for an interest rate cap - recently taken up in Parliament by Alan Whitehead M.P - as the most effective means to reduce the cost of borrowing to low income households, and call for the industry to repay the £75 million in excess profits made in the last 12 months as a levy to fund credit union and other affordable credit alternatives.

Wednesday, 10 January 2007

American Rip Off Lenders Form Coalition for 'Financial Choice'

A group of U.S lenders including payday lending companies and cheque cashers have formed the strangely named 'Coalition for Financial Choice' which urges Government to stop punishing the sector through regulation and suppressing 'innovation' in the alternative financial sector.

The Coalition announces its own birth by stating that financial services should be available to all, not just the wealthy, but goes on to conveniently ignore issues of price, conditions of offer, and social responsibility.

In their first publication, which is a four page justification for the existence of 'Alternative Financial Services (AFS) Providers' the Coalition expresses the view that those people excluded from mainstream financial services should not be assisted to return there:

"Frequently, in discussions such as this, a theme emerges suggesting that the low-income consumers are disadvantaged because they are forced to use AFS providers. The assumption is that their lives would be substantively (sic) improved if they could be moved "into the financial mainstream" and begin using banks and credit unions. However, the reality is that this simply won't happen. Nor should it."

The Coalition raises the spectre of illegal moneylending operations as justification for regulatory support for Alternative Financial Services providers in the same way that door to door moneylenders do in the U.K. But in reality both types of providers - door to door lenders and Alternative Financial Services such as cheque cashers - only exist because of the failure of mainstream lenders to meet the needs of people on low incomes. Talk of illegal lending points us in the wrong direction completely. Have we really decided that we should let mainstream banks - which this week in the UK will report £40 billion of profits - off the hook?

We need better provision within the mainstream financial services sector (sometimes working through the credit union and CFDI sectors if required) for low income households, and no acceptance of high cost and extortionate lending from either legal or illegal sources.

Interest Rate Caps Debate in Ireland

The Irish TV-Programme "Prime-Time" by RTE

9th January 2007

Report of programme by European Coalition for Responsible Credit

After their critical December programme on "united in debt" concerning families tied into overindebtedness the TV station reacts to the actual public discussion on interest rate caps in Ireland. The question for Ireland is basically whether they will hold on to the English tradition of free markets where high interest rates and no restriction to moneylending to poor people are assumed to be necessary to provide especially small amounts of credit for all and give freedom to excercise one's profession for small money lenders or whether they want to adhere to the continental European philosophy rooted escpecially in catholic culture that high interest rates are isurious and should be a question of public policies and where small credit is provided through overdraft credit on bank accounts which have single interest rates for all. Trespassing a certain ceiling ("the double of the average") is assumed to be immoral or resulting from a market failure which needs administrative or judicial control.

The programme also broadcasted an interview with ECRC board member Udo Reifner from Germany where he describes the three continental principles of regulating moneylending under the banklaw (which does not allow low quality offers), guaranteeing universal access to bank accounts and capping interest rates at the double of the average which leaves enough space for markets to play.

ECRC members on the Continent should see that presently Ireland together with the UK are the fortresses of a mere informational attitude at the European Union and basically the orginators of the present draft of the EU Directives concerning consumer credit. It is crucial that those who want to uphold the social quality standards of consumer credit should support our members in Ireland (MABS) and the UK (DOOD) who milite for more social responsibility in credit extension.

Those who want to see this programme can go directly to the website of RTE and watch

"an excerpt from last month's Prime Time Investigates report by Adrian Lydon on money lenders whose high credit costs are placing the country's poor in a year-round cycle of debt

Prof Udo Reifner, Institute for Financial Services, Hamburg, explains why he is an advocate of capping interest rates to prevent exploitation of poor people's financial misery

Mark Little chairs a discussion on the issue with Séamus Brennan, Minister for Social & Family Affairs, Pat Rabbitte, Labour leader, and Liam O'Dwyer, CEO, Irish League of Credit Unions"

RTE link here

Tuesday, 9 January 2007

FSA highlights irresponsibility in mortgage lending

The Financial Services Authority (FSA) has called on firms giving mortgage advice to improve their processes after new findings showed that only one third of the firms it sampled had robust processes in place to provide customers with suitable advice.

The FSA reviewed 252 firms of differing sizes through mystery shopping,visits and questionnaires between June and October last year to establish a baseline of the process by which advice is delivered in the mortgage industry. Scope for improvement was found in all aspects of the advice process. Some of the poorer areas identified were the assessment of customer needs, including affordability; training and competence; overall systems and controls; and record keeping.

Clive Briault, Managing Director of Retail Markets at the FSA, said:

"We found significant failings in the advice giving processes in a number of mortgage firms. Poor processes increase the risk of unsuitable advice being given. It is essential that firms have robust processes in place, so that they treat their customers fairly and provide suitable advice. It is crucial that customer needs are assessed properly. Customers should consider what they can afford both now and in the future, taking into account any likely changes to their circumstances."

Examples of bad practices included:

  • Affordability was assessed based on the customers' income and costs of servicing debt only. No account was taken of other regular expenses incurred by the customer.
  • No income and expenditure assessment was carried out prior to recommendation. Reliance was placed on the customer stating they could afford the payments.
  • Industry average figures sourced from internet websites were used to determine the customer's affordability without checking that this represented an accurate figure for the individual customer in question and did not assess whether the client lay significantly outside the average.
  • Ireland - Action to be take against moneylenders

    The Irish Times - Money lenders' licences to be reviewed every year

    Carl O'Brien

    Tue, Jan 09, 2007

    The Government is planning to change the way money lenders are regulated to help ensure those who charge excessive interest rates do not have their licences renewed.

    The Money Advice and Budget Service (Mabs), which offers advice to the public over budgeting and debt management, will be able to recommend to the Financial Regulator on whether a money lender is charging a reasonable rate. There are more than 50 licensed money lenders in the State, some of whom charge rates of between 100 per cent and 200 per cent, according to research conducted by Ralaheen Ltd, entitled Do the Poor Pay More?

    Minister for Social and Family Affairs Séamus Brennan said that under changes to legislation later this year the Financial Regulator would not be able to issue an annual money lender's licence without first consulting the Mabs agency. He also said he was taking on board recommendations in the report which found that improved access to financial services could help people on lower incomes avoid poverty and debt.

    Mr Brennan said his department was in discussion with banks over establishing a new "basic banking account".
    This would provide a person in need of short-term loan an overdraft at a normal rate instead of having to pay the often exorbitant rates offered by money lenders.

    However, Mr Brennan's plans were criticised by Labour leader Pat Rabbitte who said the Minister's plans were long overdue and amounted to little more than "political posturing". Mr Rabbitte said the most effective way to tackle the problem was to ensure people on low incomes had access to reliable sources of credit at reasonable
    rates of interest.

    "Minister Brennan should enter into immediate discussions with the credit union movement with a view to providing such a service. The credit union movement has an extensive network around the country and a proven track record," Mr Rabbitte said.

    Research shows that ID requirements for opening bank accounts, restrictive criteria for some free bank accounts and a lack of appropriate financial products are among the barriers facing people on low incomes in seeking to open a bank account. A recent report by Combat Poverty into financial exclusion found that people
    on low incomes also excluded themselves from the banking system because they lacked confidence to engage with banks, or they felt such institutions were not interested in poor people.

    Helen Johnston of Combat Poverty said its research highlighted the important role played by credit unions and post offices in providing access to savings and affordable credit facilities within disadvantaged communities.

    "People on low incomes tend to be familiar with these institutions and therefore more likely to use their services. "By expanding their services to include a wider range of facilities, such as basic 'no frills' bank accounts and emergency credit, the study suggests that these institutions can further contribute to tackling financial exclusion," Ms Johnston said.

    Tuesday, 2 January 2007

    OFT Issues Guidance on Unfair Credit

    The Office of Fair Trading has issued guidance on the operation of the Unfair Credit Relationships test which will be introduced as part of the reforms brought in by the Consumer Credit Act 2006. The test will come into effect in April 2007 for new agreements signed after that date, and April 2008 for current agreements.

    The guidance fails to set out a comprehensive view as to what an unfair relationship is, and there will be considerable uncertainty until test cases have been taken in the courts. However, there have been some revisions since the OFT consulted on it last year, and the OFT expresses the view that the courts will be able to take action against high cost lending.

    The guidance states: the OFT's view there is clearly scope for the court to find that a credit relationship is unfair on the grounds that it involves excessive costs for the borrower. Section 140A(2) requires the court to have regard to all relevant matters and these could include the cost of the credit agreement or any related agreement. This appears to be endorsed by Ministerial statements in Parliament during the passage of the Consumer Credit Bill.

    4.21 For example, the rate of interest charged under a credit agreement, or the rate or amount of other fees or charges, may be so much higher than those applicable generally in the particular market sector, or payable by borrowers in similar situations, as to make the relationship as a whole unfair to the borrower. They may also, in the particular circumstances, be oppressive or exploitive of the individual borrower even if they are in line with rates prevailing at the time in the particular sector.

    4.22 In addition, excessive prices may be accompanied by other unfair terms or practices which may contribute to an unfair relationship as well as being susceptible to possible Part 8 action in their own right."

    Debt on our Doorstep will be looking to work with agencies interested in taking test cases in relation to the cost of credit from April onwards. It should be noted that the guidance indicates that the cost of linked transactions (for example payment protection insurance and default charges can also be considered by the courts as part of an assessment of unfairness).