BBC One reports on the growing payday loans scandal

BBC's 'the One show' yesterday highlighted the growing problem of payday lending in the UK. You can watch the clip from the link below

http://www.bbc.co.uk/blogs/theoneshow/consumer/2008/09/26/payday-loans-never-a-borrower.html#comments

Channel 4 Exposes Lies of Payday Lenders

Channel 4 News has exposed the irresponsible lending of payday lenders, which offer high interest loans without checking whether or not borrowers can afford to repay and without bothering to check basic details such as earnings, before offering to extend loans for up to 6 months.

Commenting on the footage, Damon Gibbons, Chair of Debt on our Doorstep said:

"Channel 4 must be congratulated on bringing the reality of payday lending to light. Lenders are constantly telling us that they are responsible and comply with guidance from the OFT and their trade associations. This report reveals that this is simply not true. We hope that the Office of Fair Trading will look carefully at the footage and consider what restrictions now need to be placed on payday lender's consumer credit licenses."

The coverage is available from the link below starting 5 mins and 40 seconds into the clip entitled Payday Loans (broadcast on Tuesday 9th September)

http://link.brightcove.com/services/player/bcpid1529573111

Stop the Payday Lending Scandal - Write to your M.P

We have now created an easy way for you to e-mail your M.P asking them to support Early Day Motion 1280 - Affordable Credit, which David Drew M.P has tabled. The whole process takes only two minutes of your time!

We need as many people as possible to participate. To help, click here

Many thanks

Debt on our Doorstep

Parliamentary Support for Payday Investigation Gathers Pace

Parliamentary support for an investigation into the growth of payday lending, and other forms of extortionate borrowing, is gathering pace. David Drew's Early Day Motion, supported by Debt on our Doorstep has already attracted the support of 29 M.P's within only three days.

The Early Day Motion - number 1280 reads as follows:

That this House notes that the global credit crunch is now impacting on the ability of UK consumers to obtain access to affordable credit; notes that high cost and irresponsible forms of lending such as pay day lending, which charges in excess of 1,000 per cent. APR and traps people on lower incomes in a cycle of credit dependency, are now expanding rapidly as a result; further notes that Dollar Financial, one such US pay day lender, now has over 200 Moneyshop stores providing these loans in the UK; regards this development as extremely worrying for the Government's ambition to eradicate child poverty; and urges the Treasury, the Department for Business and Regulatory Reform, the Office of Fair Trading and the Financial Services Authority to conduct a joint inquiry into the growth of high cost lending, including pay day loans, in order to inform future regulatory action against irresponsible and high cost lenders and to contribute to the Government's aim of ensuring greater access to affordable credit.

You can view the signatories to the motion here.

Stop the Payday Loans Scandal - MP's to lodge concerns

David Drew, M.P, will tomorrow lay down an Early Day Motion supporting Debt on our Doorstep's call for an investigation into the Payday lending industry in the U.K. The move follows the excellent response from supporters to our own petition on the Number 10 website, which obtained 460 signatures in just over two weeks.

Obtaining the support of MP's is now a vital part of this campaign, and we ask that all supporters write to their own M.P requesting that they put their name to the motion. We will provide a standard means of doing this from this website in the next few days.

In the meantime, a briefing on the Payday lending industry has been prepared, as below.

Payday Lending in the UK: Background Note


1.1 Pay day loans are provided to people in employment, with bank accounts, and operate by the lender accepting a post dated cheque (usually of £100) from the customer which is dated to the forthcoming pay day. A cash advance is then made of between £71 and £85, depending on the lender’s terms (see table below for details of lenders in this market). The difference between the amount of the advance and the £100 is the fee charged by the lender. Multiple cheques are accepted at the same time, with lenders offering up to a £750 - £800 to new customers. So, for example, a new customer would provide 8 cheques to the lender, each of £100, and receive a cash advance of £640 (the difference of £160 being the fees charged that will be collected by the lender on the customer’s pay day). APR’s on the agreements are typically in the region of 1200%, although one lender states that they can rise as high as 9899% .

1.2 Customers are given the option to ‘roll over’ the cheques if they cannot afford to have them cashed against their accounts when the pay day comes around. To do this, the customer must pay another set of fees direct to the lender at the same rates as the initial agreement. So, in our example, the £800 liability could be deferred for another month by the customer paying a further £160 in fees. Rolling over loans is particularly problematic as no amount is being paid off the original liability. For example, after just 5 months of paying £160 per month in fees (total of £800), the original liability of £800 would still be outstanding in full.

1.3 The table on the following page details the main brands and companies involved in the provision of Payday loans in the U.K, and the main terms and conditions of their loans.

1.4 Some, but not all, lenders restrict the amount of times that loans can be rolled over in this way, and have policies in place that require at least some payment off the capital amount to be made once a loan has been rolled over more than two or three times. However, there are no details given as to the amount of payment that is required to be made towards the capital in order for further rolling over to take place, so debts can still be rolled over many times prior to being cleared.

1.5 Lenders frequently advertise the fact that no credit checks are required and that money is available quickly. No assessment appears to be made of a customer’s ability to repay. Application forms do not generally ask for any details concerning expenditure or outstanding debts of borrowers. It is likely therefore that these loans would fall foul of any reasonable definition of ‘irresponsible lending’ – a term included in the Consumer Credit Act 2006 that the OFT must consider when licensing credit providers from 6th April 2008.

1.6 There is an absence of published information concerning the size of payday lending operations in the U.K. However, the expansion of Moneyshop stores over the past 12 months, the entry into the UK of QuickQuid in the third quarter of 2007, U.S takeover of Month End Money and the significant increase in internet sites and financial brokers offering payday loans over the past 12 months indicates that the sector is growing rapidly.

1.7 Dollar Financial, owners of the Moneyshop brand, report that their U.K. business realized growth of 71.7% in 2007 and that U.K. loan originations increased by 55.3% or $34.5 million in that year. They have 221 company operated stores in the UK, and a further 193 operated under franchise, which is approximately 25% of all payday lending outlets in the UK . 2007 third quarter accounts indicate that approximately £16 million is put out on loan each month in the UK. We estimate that a customer base of approximately 150,000 - 200,000 people would include what be required to sustain this. Assuming that the outlets of competitor lenders have similar reach, then this would suggest a market of approximately 600,000 - 800,000 people although recent developments including the increased availability of payday loans on the internet may mean that this is a conservative figure.

1.8 The advertising of payday loans on many websites is often deliberately vague and fails to provide essential information, such as the APRs, and the impacts of rolling over loans on these. In some case advertising may breach the relevant regulations. For example, the website for Quicksilver payday loans, a brand of MEM Consumer Finance Ltd., contains the following statement:

“Payday loan companies are required to calculate the APR% for their customers even though the measure is inappropriate for 30 day (i.e. very short term) cash advances. We’ll calculate it when you go through the application process…”

MEM Consumer Finance Limited also launched a TV advert in December 2007, which is running throughout 2008, under the brand name Payday Now!. This fails to mention the APR of loans at all.


Main Payday Lenders in the UK - Terms and Company Information

The Moneyshop £9.99 on first cheque of £100 only – APR of 260.2%. Usual rates, and anything other than the first cheque, are charged at £14.99 and advances made of £85.01, which would bring APR’s up to approx 1,000% Owned by Dollar Financial, US company expanding in the U.K. Has over 250 stores in the UK now and in the quarter to 31st December 2007 recorded lending growth of 55.3%. The company lends approximately £2.5 million per month

Month End Money,also trading as Payday Now!, PayDay UK, Payday Store, Quicksilver Payday Loans £25 per £100 borrowed. Will lend up to £750 to new customers. APR – 1355%. The Quicksilver website states that full roll overs allowed for two months, then some element of capital repayment required in addition to the roll over fee (amount of capital to be repaid not specified). Owned by MEM Consumer Finance Limited which was acquired by US company CompuCredit in 2007 - unfortunately Compucredit’s accounts do not break down by country, so it is not possible to determine the size of the UK operation. The company has launched a TV ad in December 2007 which is running throughout 2008

Payday Express, Wageadvance.co.uk, Paydaysolutions.org.uk. £20 on each £100 borrowed. APR 1286.1% (based on 31 day month). Will lend up to £800 to new customers. Money available over the internet and paid into bank accounts within 2 days or same day (for which an additional £15 fee is charged) After 3 loans, customers can apply for an increase in the limit. Owned by Express Finance (Bromley) Ltd – Turnover of roughly £1 million per annum. Family owned firm.

Albemarle & Bond. Payday loans available up to £600. No information on website concerning charges – available from within their pawnbroking stores. A national pawn broking company with 75 outlets that has expanded into pay day lending. Company income from payday lending has increased from £0.05 million in 1996 to over £3.6 million in 2006.

Chequebook Loans. £20 on each £100 borrowed – APR 1286%. Company based in Luton, offering payday loans over the internet. Private limited company. Exempted from last accounts requirements on basis of small size. Next accounts due in April 2008.

Payday Advance UK. £29 on each £100 borrowed – no APR figure given on the website. Limits of up to £1000 for new customers. Company registered in Malta. Member of Consumer Credit Association UK.

QuickQuid. £25 - £50 charge on each £100 lent. (APR generally 1,576.5%) Website also states that typical rates range from 1351.7% to 9889.3% A subsidiary of CashNetUSA and Cash America Intl.. Only operates on the internet for UK customers – a service started in the third quarter of 2007. No figures yet available concerning take-up. Next financials released on 24th April 2008

Stop the Payday Lending Scandal - Sign our Petition

Payday lending is growing exponentially in the UK.

U.S lenders, such as Dollar financial, have exported their business to the UK (trading here as 'Moneyshop') and now have over 200 stores in the UK. Pay day loans carry APR's of up to 1,000% and are regularly rolled over ensuring that households in financial problems are trapped into a cycle of credit dependency. Although the US pay day lending industry is subject to interest rate restrictions in their own country (including a 36% APR cap on pay day loans made to US military personnel), no such restriction on interest rates is in place in the UK.

Debt on our Doorstep have now launched a petition on the Number 10 Website calling on the Prime Minister to ensure an investigation is conducted into the UK pay day lending industry. Debt on our Doorstep is also calling on the Prime Minister to reconsider its previous decision not to introduce interest rate ceilings in the U.K.

You can sign the petition here http://petitions.pm.gov.uk/Payday-lending/

The petition closes on 27th March 2008.. Please e-mail your friends and ask them to sign up.

Cash Converters take fright as Queensland accepts the need for rate caps

Payday lenders won't wear interest cap

From ABC Far North Queensland, 19th October 2007
By Derek Tipper

Payday lenders and financial counsellors disagree about the need for controls on interest charges on short-term loans, as the Queensland Government decides on the value of an interest rate cap.

Ever needed cash quickly and borrowed the money from a short-term lender? Whether you understand these transactions as payday loans or as the lenders prefer to call them, micro credit, chances are you paid back much more than the average $250 of the loan.

Each week borrowers need anywhere from $100 to $1000 to make ends meet. Spooked by stories of borrowers paying back $5000 on a $100 loan the Queensland Government is proposing to follow other states and cap the interest rate charged on these loans at 48 percent.

The move has the support of financial counsellors and consumer advocates like Indigenous Consumer Assistance Network general manager Aaron Davis. Mr Davis said many of his clients simply do not understand the concept of interest and are not capable of entering into a contract.

The industry is dead set against an interest cap. Rob Leggett, the Queensland President of the Financial Services Federation argues it would drive scrupulous operators out of the business of pay day lending because they simply couldn't make a profit. Mr Leggett said a cap was just bad business.

One of the biggest players in the industry, Cash Converters, is so concerned about a cap they have adopted a marginal seats campaign, lobbying 33 Queensland MPs whose electoral margins are smaller than the number of 11,000 signatures on a petition tabled in the Queensland Parliament opposing the proposed interest rate cap.

Cash Converters has also posted a video on You Tube purporting to depict customers supporting the need for payday lending, they also bought a full page ad in the Sunday Mail urging the government to reconsider.

Cash Converters General Manager Ian Day said a 48 percent cap would discriminate against low income earners and others who struggle to get credit. Mr Day said while scrupulous lenders oppose an interest cap they support regulation of the industry. But financial counsellors working with borrowers who get into trouble with these loans are not convinced.

David Tennant, chair of Australian Financial Counsellors and Credit Reform Association said claims by pay day lenders that a 48 percent interest cap makes their business unviable had not been borne out in the states, such as Victoria and New South Wales, where a cap already exists.
Mr Tennant said any lender that could not make a profit under a 48 percent interest rate cap should leave the industry.

ICAN'S Aaron Davis said there was an alternative to the current pay day lending products, with organisations offering interest free loans for the purchase of necessities. Queensland Attorney General Kerry Shine confirmed Queensland will have an interest rate cap but was not prepared to say what the interest rate would be.

Pressure Grows for Rate Cap in Queensland

The following is an article from the Courier & Mail, Queensland, Australia - 3/08/2007

Mum's 240% interest scare

KAREN Deakin doesn't want to see another payday lender again. A loan bearing 240 per cent interest rates tends to do that.

Like many who sign up for short-term credit, the Brisbane pensioner did not read the fine print of her contract saying what the true interest rate was.
The lender was too busy telling her about the small weekly repayments.

"It's just terribly wrong," Ms Deakin, 41, of Loganlea, said yesterday.

"There should be something done to stop people like this taking advantage of people who are desperate."

In October 2005, she borrowed $1500 from a Beenleigh lender on Brisbane's southside to help pay a few bills. The contract – completely legal – was for one year with a weekly repayment of $80, amounting to about $4300 by the end of the term.

Had Ms Deakin borrowed the same amount on a standard credit card rate of 15 per cent, she would have paid $80 a week for five months, paying about $100 interest.

When the contract and repayments expired last October, however, the lender kept taking the repayments out of her account every week.

Ms Deakin only noticed this last month when she received a receipt for the extra $3000 she had paid.

Ms Deakin may not have found herself in the predicament she is now in if Queensland's Fair Trading Minister Margaret Keech had kept her promise to protect Queenslanders from exorbitant payday lending interest rates.

In some cases, it had been reported, that rates of more than 1600 per cent were being demanded.

In an admission which has infuriated consumer groups, Mrs Keech yesterday admitted her self-imposed mid-year deadline to cap exorbitant rates had not been met.

The missed deadline comes after nine years of Government inaction and broken promises.

Queensland lenders can still charge consumers whatever they want, despite other states introducing rate caps of about 48 per cent in 2001.

Mrs Keech said the legislation hadn't gone to Cabinet because

finalising the consultation process took longer than her department had anticipated.

"I expect to finalise the Government's response to this issue, including proposed legislation, in 2007," she said.

Consumer groups such as Legal Aid Queensland are furious after falsely believing help was finally on the way.

The group recently settled a court case against a lender charging 1642 per cent annually.

The loan was ostensibly at 9 per cent, but had to be repaid in 48 hours, making the annual rate astronomical.

"We're still waiting," LAQ chief executive Jenny Hardy said.

"In the meantime, our clients are still hurting as they struggle to pay off their debts."

The Courier-Mail revealed last year a list of promises from ministers to review and cap rates dating back to July 1998.

Opposition fair trading spokesman Mark McArdle yesterday called on the Premier to intervene.

"Empty promises from empty vessels," Mr McArdle said.

"If the minister can't even commit herself to a deadline and make it happen, then the Premier has got a real problem and should be doing something."

Mrs Keech indicated she intended to introduce a cap – expected to be similar to 48 per cent – to limit the cost to consumers.

However, such a move would be one lenders such as National Finance Services Federation Queensland president Rob Legat claim will devastate the industry.

Mr Legat said it was wrong to ask a business to fix its income, which would effectively happen under cap legislation.

Washington Post comes out in favour of caps on payday loans

Yesterday's editorial in the Washington Post came out in favour of a 24% interest rate cap on payday loans in the state, and neatly summarised the issues relating to caps generally. Moves are currently afoot to introduce caps in 12 U.S states and the UK consumer may be wondering why it is that US payday lenders such as Dollar Financial (trading under the Moneyshop brand in the UK) continue to operate here with no limits on interest rates and fees...

The full article follows:

Salary Sinkhole
The District would be right to impose limits on payday lending.
Wednesday, August 1, 2007; Page A16

CHANCES ARE, everyone at some point has been short of cash. Most people, though, wouldn't even consider a loan if the interest totaled nearly 400 percent a year. That those who are least able to afford such exorbitant rates are being victimized by them is reason enough for the D.C. Council to follow through on plans to crack down on payday lending.

Before adjourning for the summer, the council gave tentative approval to a measure restricting the rate of interest on payday loans. Typically located in low-income neighborhoods, payday lenders offer short-term loans (generally two weeks) of several hundred dollars. All a borrower needs is a post-dated personal check and a pay stub verifying employment.

The current rate is about $16 to borrow $100 for two weeks, or an annual percentage rate of nearly 400 percent. Under the bill sponsored by council member Mary M. Cheh (D-Ward 3), payday lenders would lose their exemption from the 24 percent interest-rate cap that applies to lending in D.C. The industry is expected to pull out all the stops to block final passage, arguing that the service is needed because people without established credit have no other options. In fact, the business is rooted in the inability of borrowers to repay their loans in full and on time. People take out new loans to pay off old ones; the nonprofit Center for Responsible Lending estimates that a typical borrower (in the District that person is a single mother with little means) ends up paying back $793 for a $325 loan.

It is instructive that Congress, appalled by stories of soldiers and their families hobbled by debt, voted last year to put in place a 36 percent cap on payday loans for military personnel. At present, some 12 states, including Maryland, have moved against payday lending. One reason the industry is so alarmed by the prospect of the D.C. regulations is that they could have a ripple effect: Virginia came close to imposing restrictions this year. No doubt capping interest rates will cause some firms to stop doing business. But the experience of states such as North Carolina has shown that there is no adverse impact on consumers and that more responsible forms of lending fill the gap.

Families stuck in payday lending trouble

From The Roanoke Times, Saturday 17th March

Helen O'Beirne

O'Beirne is responsible lending coordinator for the Virginia Partnership to Encourage Responsible Lending.


The bad news: Predatory payday lending is still alive in Virginia, at least until our next General Assembly session. Every year this problem goes unaddressed, payday lenders strip $160 million in excessive fees from the paychecks of hardworking Virginians.

The good news: People are getting it. Gov. Timothy Kaine gets it. He publicly declared his intention to impose a limit on the amount of interest payday lenders could charge.

Members of the House of Delegates get it. They passed an interest rate cap of 72 percent for payday loans -- still twice the normal usury limit for Virginia's small loan companies, but a much more reasonable rate than the 400 percent payday lenders typically charge.

And the general public gets it. Concerned citizens from across the commonwealth continue to voice their discontent over the exploits of payday lending. Faith groups call it usury, moral outrage. The business community is ashamed to be associated with payday lenders. Labor leaders decry the maltreatment of their members.

This issue is not going away. Including Virginia, legislators in at least 13 states have introduced legislation this year that would place similar interest rate caps on payday and car title loans to all their citizens. Virginia's General Assembly was the first legislature to consider such a measure in 2007, and could have been the first to enact the law, providing true leadership in a movement that continues to grow across the country. But the payday industry hijacked the process, using a slick public relations campaign and lobbying blitz to push its own idea of "reform."

There was a reason they were so willing to accept these so-called reform measures -- each had been tried in other states, and each had failed to stop the abuses. In other words, the payday lending industry's version of reform was a package of half measures that, at the end of the day, would allow them to conduct business as usual -- debt trap and all.

When it became clear that the industry was never interested in real reform that addressed the abusive aspects of payday lending, Kaine called their bluff and announced his objective to amend the bill when it reached him by adding an annual interest rate cap of 36 percent. If it's good enough for military families, its good enough for all Virginians, the governor told the press.

The industry killed the bill rather than agree to this cap.

Payday lenders depend on repeat borrowing and exorbitant interest rates for their survival. But these elements are what makes payday lending so financially devastating. Giving an industry built on loan flipping an exemption from the state's interest rate cap was a bad idea in the beginning, and it's still a bad idea today.

Virginia's firefighters, police officers, teachers, nurses and service workers all deserve to keep their hard-earned cash for real needs, rather than handing it over week after week to predatory lenders who have them caught in a trap.

This issue is sure to be on the agenda next year. The industry will again try to head off real reform by offering weak provisions that don't threaten their ability to operate loan-flipping businesses. And a strong and growing coalition of advocates from every point on the political spectrum will return with new energy.

It can't come soon enough. Every day that payday lending isn't brought under control, another hard-working Virginian is paying exorbitant interest and cycling deeper into inescapable debt traps that spell financial ruin for their families.

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?

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.