Complaints about Default Charges Soar

The BBC reports that complaints concerning bank default charges are soaring, with over 1,000 people calling the Financial Services Ombudsman on this issue every day.

The Ombudsman is taking on about 150 penalty charge cases a week, but the number of phone calls it receives from consumers looking to find out how to get penalty charges refunded is far greater. On Wednesday, following coverage of the issue by BBC's Wathchdog programme, over 3,000 calls were made to the Ombudsman.

The level of complaints being made is being compared to the endowment mis-selling scandal and is now the single biggest area of consumer complaints.

"Previously the largest number of complaints we received related to endowments," a spokeswoman said.

"However, we are getting at least three penalty charge calls for each one about endowments at present."

Unlike the endowment mis-selling scandal, however, the regulators and Government continue to fail to force the industry to take pro-active steps to provide consumers with redress, leaving all of the onus for action on the individual. Perhaps that is the greatest scandal of all...

Capital One fined for PPI Mis-selling

Capital One Bank has become the latest lender to be fined by the FSA for failing to protect consumers against the risk of being mis-sold insurance policies.

The credit card firm was found to have neglected to ensure that 50,000 customers received important information about Payment Protection Insurance and has been fined £175,000 - although none of the fine will find its way back to borrowers.

The FSA found that Capital One had inadequate systems and controls for selling PPI insurance and thus failed to treat its customers fairly. During 2005, Capital One sold approximately 335,000 PPI policies on UK credit cards.

Margaret Cole, director of enforcement at the GFSA, said: "We are determined to see much better practice in PPI.

"It is unacceptable for people to be put at risk of buying unsuitable protection insurance through not being given the right information at the right time."

U.S Payday Lender Hits Paydirt in the UK

US Payday lender, Dollar Financial, has found rich pickings in the UK in the past year. The firm, which trades through 250 MoneyShop outlets in the U.K, further expanded its operations here by opening four new stores in the last quarter.

Moneyshop offers cheque chashing, pawnbroking, consumer loans (at 123% APR), payday loans and pre-paid credit cards to people (with minimal inquiries into their ability to repay), and is characterised by brash advertising of people holding wads of cash in their hands, and promises of instant decisions.

The company's latest quarter financial highlights reveal that the UK operation is expanding rapidly:

UK cheque cashing revenue up 20.5% on last year to $10.7 million

Amount of lending on those 123% APR loans up by 22.6% to £50.8 million

Jeff Weiss, Chairman of Dollar Finance, who is reported as earning $1.83 million per year, has been busy in the U.S defending the Payday lending industry from legislation to restrict interest rates. Since a cap on payday lending rates (at 36%) was brought in for U.S military personnel, a number of U.S states have been campaigning for similiar protections for their residents. Only yesterday a new bill was passed in Oregon's House of Representatives that proposes a 36 percent interest rate cap on short-term car title loans and on Internet payday loans that do business in Oregon, would restrict fees charged by check cashers, and create an electronic tracking system for payday loan borrowers to make it difficult for short-term lenders to use a different lending license to circumvent interest rate caps.

Further anti-payday lending laws are in progress in South Carolina where a bill was introduced into the General Assembly this week by Republican Senator Alan Clemmons that would limit the annual interest rate payday loan companies may charge their customers to 36 percent, plus a $5 administrative fee per loan. In Virginia, a compromise bill (with the support of the industry) looks set to be passed that will establish a database to track borrowing activity and limit customers to three outstanding loans at the same time. Repeat borrowers - someone who gets four loans in a row - could qualify for a 60-day repayment plan, at no cost, to escape the cycle of debt.

So all of this begs the question, why aren't UK borrowers being provided with the same levels of protection that U.S borrowers enjoy, even though the company they borrow from and the lending model that it uses in both countries is the same?

Charity Offers Help With Fuel Poverty

Customers of British Gas across the country who are struggling with fuel debts were today being urged to contact a national charity for help.

The British Gas Energy Trust is urging people to contact them as they can clear fuel debts and also help with other household bills and costs including the replacement or repair of condemned gas appliances.

Charity chiefs said they have so far handed more than £2 million to over 5,000 individuals across the UK who were in fuel poverty and struggling to afford to heat their homes.

To find out more or for an application form please visit the trust's website at www.britishgasenergytrust.org.uk or phone 01733 421021.

Singapore - Responsible Lending Requirements & Rate Caps

Changes to Singapore's responsible lending requirements have been welcomed by banks including Citibank, which continue to operate in a legislative environment that includes a duty to make full and proper assessment of borrowers' circumstances and interest rate caps on small sum credit. Article from Channel News Asia, dated 1st February 2007 follows.

By Loh Kim Chin, Channel NewsAsia

SINGAPORE: You will now qualify to apply for unsecured credit facilities with banks – if you earn at least S$20,000 a year.

The Monetary Authority of Singapore (MAS) and the Law Ministry (MinLaw) have decided to relax the rules on such facilities.

Previously, applicants had to earn at least S$30,000 per annum.

Unsecured credit refers to things like overdraft facilities where people pay interest from the time they draw down on the sum.

The latest rules do not apply to credit cards, which still require a minimum income of S$30,000 a year.

There will also be a more conservative maximum credit limit.

Those earning between S$20,000 and S$30,000 a year can only borrow up to twice their monthly income.

But if they earn at least S$30,000 a year, they can borrow up to four times their monthly pay.

There will also be changes to the moneylenders’ regime.

For instance, for unsecured loans of S$3,000 and below, there will be no minimum income requirement but such loans will be subjected to an interest rate cap.

To mitigate the risks of over-borrowing by individuals from all income groups, MAS and MinLaw will require financial institutions and moneylenders to conduct adequate and relevant checks on borrowers before lending.

MAS and MinLaw will make the relevant legislative changes to the Unsecured Credit Regulations and the Moneylenders Rules by the middle of the year.

The new rules are expected to level the playing field among banks which are regulated by MAS, and lending by other businesses.

Banks have welcomed the move.

Citibank says it will be assessing this new area of opportunity in greater detail to serve the needs of these consumers.

This group of customers is estimated to number between 450,000 and 500,000.

OCBC says the changes will give borrowers more options and open up opportunities for a group of individuals who previously had limited access to unsecured facilities. - CNA/so

South Korea to reinstate interest rate ceilings

Korea Times - 15th January 2007


By Lee Hyo-sik
Staff Reporter

The government has decided to place a ceiling on interest rates private moneylenders can charge to retail borrowers, mostly people with low incomes who turn to alternative sources for funds.

It will revive state control on interest rates charged on loans, nine years after it abolished the regulation in 1998 at the request of the International Monetary Fund (IMF), according to the Ministry of Finance and Economy.

An increasing number of young and old with neither good credit records nor regular jobs have turned to private moneylenders for funds over the past year as they are denied loans from banks and other institutional financial firms.

"Interest rates charged by most private moneylenders must be brought down as many people default on their payments because of excessively high interest rates. We have decided to put a cap on interest rates and lower the current legal limit of 66 percent on private lending agencies", a ministry official said.

He also said the government will crack down on "loan sharks that charge interest rates over the legal limit to minimize damage to people with low incomes and provide financial rewards of up to one million won to those who report the illegal business practices of unregistered private lenders.

"However, we have not yet come up with an exact figure for the interest rate cap. We will make it public after studying the private money lending industry and consulting with the Ministry of Justice", he said.

The governing Uri Party has proposed setting the interest rate limit at 40 percent per year, while the progressive Democratic Labor Party insisted on adopting a 25 percent interest rate ceiling.

The government estimates that about 5.6 million people borrowed money from private lenders last year, paying about 200 percent interest per year on average, much higher than the legal limit of 66 percent set by the government.

There were about 16,000 private moneylenders registered with the government as of June, but some 40,000 illegal moneylenders are estimated to operate in the country.

According to the National Information Credit Evaluation (NICE) firm, one of the local credit rating agencies, outstanding balance of loans extended by loan sharks increased to 796 billion won in 2006 from 570 billion a year earlier.

Insolvencies Continue to Rise

The latest statistics from the Insolvency Service reveal that nearly 30,000 people went bust in the final quarter of 2006 - a further increase of 7% on the previous quarter and up by over 44% on the same period a year ago.

The majority of insolvencies were bankruptcies (17,063), which accelerated (up over 9%) their growth on previous quarters as the numbers of people entering IVA's started to steady (12,741 in the quarter and a rise of only 4% on the previous period), which may indicate that the harder line on IVA's being pursued by the credit industry whereby proposals of anything less than 40p in the £ are starting to be rejected, maybe back-firing on lenders as debtors are forced into bankruptcy as an alternative.

Damon Gibbons, Chair of Debt on our Doorstep commented:

"These figures demonstrate that the UK's debt problem shows no sign of abating. The results of lax lending policies in previous years are really starting to come home for the credit industry, with over 100,000 individual insolvencies in 2006. The rate of growth in the last year has been staggering and the Government needs to urgently review its plans to prevent over-indebtedness in the UK. On this evidence, the plan isn't working."

Debt on our Doorstep has previously highlighted the need for much stronger regulation of the industry to prevent irresponsible lennding, full data sharing by lenders to ensure proper assessment of a borrowers total indebtedness, placing a requirement on the credit industry to take proper account of ability to pay before making a loan, and requiring the financial services industry to support the provision of debt advice services through a statutory levy.

Casino proposal risks increasing debt in Manchester

Debt on our Doorstep Vice Chair, Niall Cooper has condemned this week's announcement that the UK's first super-casino will be in Manchester as a "threat to worsen the city's already poor record on debt and child poverty".

Niall Cooper, national coordinator of the Manchester based Church Action on Poverty, and vice-chair of the Debt on our Doorstep campaign said: "Only last week Save the Children reported that Manchester has one of the worst records for child poverty in the country. Locating the UK's first super-casino in East Manchester - one of the poorest areas of the city - runs the risk of worsening the city's already poor record on tackling child poverty. Many families across the city are already struggling to make ends meet - the super casino is likely to tip many over the edge into crippling and unsustainable debt."

"Far from stimulating the regeneration of the area, a super casino in East Manchester could create a rise in debt, gambling addicts, crime, debt and homelessness. Recent research from Australia suggests that relaxing gambling laws has led to an increase in homelessness, problem gambling and other social problems. The council talks about it bringing jobs and tourism but regeneration is not to be welcomed at any cost."

GE Capital Fined for PPI Mis-selling

GE Capital has been fined £610,000 by the FSA in the latest action against lenders for PPI mis-selling.

The FSA's final notice to GE Capital highlights a series of failings to ensure that borrowers received accurate advice on PPI policies, including:

Failure to review and change sales processes to ensure accurate and appropriate information;

Despite evidence available that sales staff were not appropriately advising consumers, GE Capital failed to implement proper training;

Despite having management information available from the middle of 2005 onwards that sales processes were failing consumers, GE Capital failed to act to ensure that they hhad in place proper monitoring systems to check compliance with FSA requirements;

Staggeringly, despite its knowledge that many consumers would have been mis-sold PPI policies GE Capital failed to put in place any programme to provide redress and to compensate its customers

GE Capital provided PPI to 850,000 consumers in 2005 with a premium value of nearly £8 million.

Government to roll out anti-loan shark pilots

The Government has announced that it is to roll out its pilots against illegal moneylending and will achieve nationwide coverage by the end of 2008.

Commenting on the roll out of the project, the Minister responsible for financial inclusion, Ed Balls, said:

"Loan sharks are a blight on some of the least well off communities, and so I am pleased to see the success we are already having in tackling these criminals and helping their victims. Today's announcement will bring help to more victims nationwide while also sending a further warning that these illegal and unacceptable practices will not be tolerated."

Over the last two years, two pilots have been operating in Birmingham and Glasgow and research in December 2006 revealed that illegal loan sharks frequently resort to intimidation and threats of violence to extort large sums of money in return. The pilot teams have had some success in bringing prosecutions, but this is often hampered by the fact that there is no specific offence of usury or Illegal money-lending and the teams have to draw on a number of disparate pieces of legislation to bring a case. The roll out will bring the approach to Sheffield, Leeds/Bradford, and Liverpool later this year and the Treasury is provide for national coverage by the end of 2008 by establishing regional bases. The precise locations of the bases has not been announced.