Archive for May, 2010

A top judge has sparked outrage by backing the right of loan companies to charge crippling interest rates.

Judge Charles Harris QC threw out scaffolder Mark Mannion’s claim that it was unfair for one high-cost lender to demand 330 per cent A YEAR interest from him.

He ruled that Logbook Loans – which lends cash against the value of people’s cars – was not being extortionate in charging £5,000 in interest and late-payment charges from Mr Mannion, who borrowed just £750 against his BMW car.

Incredibly, Judge Harris, who earns £128,296 a year, went on to praise "subprime lenders" – the very people who plunged the world into recession.

He said companies like Logbook Loans perform a "valuable function for some people who are unable to b o r r o w from their banks or mortgages". But shocked anti-debt campaigners fear the test case will give other lenders the green light to charge rip-off rates.

Damon Gibbons, of Debt On Our Doorstep, said: "The judge is basically saying that lenders have a free rein to fleece people. This sends out completely the wrong message because it means loan companies can go charging whatever they like."

Citizens Advice head of policy Sue Edwards, whose charity helped bring the case, said: "It’s very disappointing that the judge seems to have taken the view that these loans are perfectly OK. We see lots of cases where people take out really high-cost loans where the full cost only becomes apparent a long way down the line." Mr Mannion, 41, of Banbury, Oxon, only wanted £250 to pay his rent while he was off work with back problems but had to borrow a minimum £750 from Logbook Loans.

He handed over ownership of his £4,000 BMW as security for the loan in October 2006 and paid back the £500 he didn’t want.

But Logbook Loans worked out the interest on the full £750 and Mr Mannion quickly got into debt. After seeking help from Citizens Advice, Mr Mannion was awarded legal aid to challenge the repayment charges under the Consumer Credit Act.

Last week Judge Harris wrote off the £5,000 outstanding interest on the loan and ruled Mr Mannion would only have to pay back £610 of the £750 he borrowed because he had already returned £140.

He said Logbook Loans misled Mr Mannion by telling him he would pay less interest if he paid the money back early.

But he said Mr Mannion failed to reveal he was out of work when he borrowed the cash. Awarding the cost of the five-day hearing at Oxford County Court to Logbook Loans, he said: "Having heard his evidence it is not at all obvious that the defendants deserve to be stigmatised as extortionate or unfair lenders."

THE VICTIM

Desperate Mark Mannion turned to Britain’s biggest logbook lender when he fell behind with his rent.

He said: "I had an accident at work and I needed to borrow money quickly. Nothing I had was worth any money apart from my car.

"I only wanted £250 but they said I would have to borrow £750 so I cashed the cheque and gave them back the £500 straight away."

Mark handed over the owner-ship documents for his £4,000 BMW in October 2006 in return for the loan.But the company worked out the interest on the full £750 and Mark got deeper into debt.

He said: "I thought I would only be charged interest on the £250 but I had to pay interest on the whole lot. They never explained the details of the loan agreement.

I didn’t have clue what the documents meant because I am a normal layman.

"They tried to seize my car but on the advice of Citizens Advice I hid it. I totally regret getting involved with Logbook Loans. I’ve had four years of nothing but stress."

THE JUDGE

Deer-stalking judge Charles Harris enjoys a luxury lifestyle.

He lives in a £2million manor house in the Oxfordshire countryside, just down the road from Top Gear presenter Jeremy Clarkson and ex-Blur musician Alex James.

The 65-year-old judge – whose full name is Geoffrey Charles Wesson Harris – stood unsuccessfully for the Tories at the October 1974 General Election.

The privately-educated QC, who lists his hobbies in Who’s Who as history, architecture, fireworks, skiing and deer stalking, belongs to the posh gentleman’s club Travelers in London’s Pall Mall.

When he’s not handing down judgments in both the criminal and civil courts, he enjoys writing magazine articles on ballooning and deer stalking.

As president of the 600-strong Council of Circuit Judges, he has called for an end to the "torrent" of new laws that have made the legal system "incomprehensible to judges and public alike".

The father-of-three has said there is far too much legislation – much of it poorly drafted.

THE LOANS BOSS

Logbook Loans, based in Putney, South-West London, is run by millionaire businessman and ex-footballer Iain Shearer.

It offers loans of up to £50,000 in cash in just 24 hours and without personal credit checks.

Latest accounts show it made loans of more than £19million in 2008.

Last autumn, the company was stripped of its credit licence by industry regulators after a string of complaints from customers.

But the company has been allowed to continue operating while it appeals against the Office of Fair Trading decision.

Mr Shearer, 61, who once played for Hamilton Academicals and is a former boss of Excel, the giant exhibition complex in London’s Docklands, now runs a string of companies and lives in a £2million mansion near Moreton in Marsh, Glos.

After the judge’s decision Paul Foster, of Logbook Loans, said: "The judge’s comments speak for themselves. He said our company provides a valuable service for which we should not be stigmatised and found this service is more valuable in times such as now when credit is very hard to come by f o r m a n y people."

Source: mirror.co.uk

New analysis from Experian®, the global information services company, reveals a sharp increase in personal insolvencies among middle-class professionals and the super rich during 2009.

The analysis, presented to senior credit risk professionals from UK financial institutions at Experian’s Credit Risk Summit event in London, shows that the highest number of personal insolvencies occurred in Torquay, where 10 in every 1,000 adult residents became insolvent during 2009. Llandudno, Irvine, Falkirk and Skegness also saw high concentrations of insolvency, with around eight in every 1,000 residents becoming insolvent. Hamilton saw the biggest rise in insolvencies, from four to seven in every 1,000 residents between 2008 and 2009, an increase of 57 per cent.

The Global Power Brokers consumer type identified by Experian’s Mosaic classification saw personal insolvencies increase by 43 per cent in 2009. These types are highly educated and privileged people living in the exclusive areas of London such as Kensington, Chelsea, Regent’s Park and Hampstead. Likewise, there was a 36 per cent increase in the number of the financially successful people that make up the Serious Money group becoming insolvent.

Experian’s analysis of County Court Judgments further highlights the recession’s impact on the wealthy groups. While the number of County Court Judgments was down across the majority of consumer groups in 2009, the biggest increase was in the Serious Money consumer type, which saw its count of County Court Judgments increase by 12 per cent. Distinctive Success, highly educated, high-earning, middle-aged professionals, saw County Court Judgments increase by six per cent and Parish Guardians, typically lawyers, board directors, accountants and tax consultants living in picturesque rural locations such as South Woodham Ferrers in Essex, Pulborough in West Sussex and Nailsworth in Gloucestershire, saw a five per cent increase.

2009 saw a 41 per cent increase in personal insolvencies amongst Yesterday’s Captains – retired, middle-class couples and widows living in area such as Solihull, Cheadle and Cardiff’s Whitchurch district on final salary pensions or from investments in companies they once managed. There was also a 38 per cent increase amongst Hardworking Families – older married couples typically employed in mid-level administrative positions within organisations where they have worked for many years. There are high concentrations of this consumer type in the Kidsgrove and Alsager areas of Staffordshire, Coalville in Leicestershire and South Benfleet in Essex.

Despite the sharp increases in personal insolvencies and County Court Judgments amongst more affluent groups, the majority continued to come from consumer groups living in former council housing who have stretched their finances attempting to emulate more affluent lifestyles.

The Legacy of Labour consumer group, typified by older people living on limited incomes in the council estates of Northern and Midland industrial towns such as South Shields, Walsall and Sutton-in-Ashfield, saw the highest count of personal insolvencies (10,751) during 2009, 10 per cent more than during 2008. Legacy of Labour also received 43,675 County Court Judgments during 2009, the most of any group. Stressed Borrowers, a low-income group of family heads living on former council estates in areas of southern England like Croydon, Crawley and Bracknell suffered 9,321 insolvencies during 2009, up by almost six per cent on 2008.

Only Military Dependants, people serving in the armed forces and their partners, saw a significant drop in insolvencies (down 21 per cent) during 2009.

Phil Cotter, Managing Director for Credit Services at Experian, UK & Ireland, commented: “Our analysis shows that the recession impacted all sections of society, with the most exposed becoming insolvent at a higher rate than ever before. Groups that had come to rely on manufacturing and low-skilled service sector jobs have been hit the hardest, but the biggest increases were amongst the UK’s most affluent and successful consumer types.

“Predicting risk in consumer lending has become more complex, with accounts once correctly considered medium to low risk and profitable increasingly entering collections due to the changing economic climate. Lenders need to ensure that their credit risk and collections capabilities evolve to enable the most responsible and sustainable lending decisions. Our analysis underlines that it is vital to obtain a thorough understanding of each and every customer throughout the credit lifecycle, including the total value and risk they represent, as well as how they are exposed to changing micro-economic conditions.”

Source: creditMan.co.uk

Cost-conscious brides and grooms are getting creative to finance their big day without resorting to credit cards and loans, according to new research from cashback website Quidco.com.

Just one in four engaged or recently married couples surveyed by Quidco.com* said they were using credit cards or a loan to fund their wedding, with most people relying on savings (84%) or getting a contribution from family or friends (60%).

Three in ten had asked friends and family to make contributions in kind, such as making the cake or wedding invitations, and one in four had raised extra cash by selling things they no longer needed.

Almost half (46%) of the brides and grooms surveyed said they had taken advantage of cashback and other online discounts to save hundreds of pounds on everything from the wedding dress to flowers, gifts, the honeymoon and engagement rings.

But although the average cost of a wedding has risen to more than £20,000, just one in three people had bought an insurance policy for their big day. Wedding insurance could cover costs if, for example, the ceremony had to be postponed or cancelled, adverse weather stopped most guests from attending, the venue or a supplier went out of business ahead of the wedding, or the rings were lost.

People who had bought insurance spent £46 on average, or less than a quarter of one per cent of the average wedding cost.

Nicola Frame from Quidco.com says:

“Rather than start married life in debt, brides and grooms on a budget are thinking creatively to keep their wedding costs down, by selling things on eBay, getting cashback on their spending and asking friends and family to chip in with homemade cakes and invites. But even on a tight budget, the big day is usually a major financial investment which involves a myriad of suppliers, so the small amount you save not buying insurance could turn out to be a false economy.”

Source: creditman.co.uk

A limit will be put on the interest rates that companies can charge customers on bank and store cards.

The new coalition Government has said it will appoint a regulator to determine what is an “excessive” interest rate and ensure that such a rate will be banned. This could see any card charging more than 25 per cent banned, potentially scrapping a handful of cards from the market.

However, financial experts gave warning that the move – while welcome – would be meaningless if the Government did not tackle the wider problem of high debt charges elsewhere.

The coalition document which laid out the key policy areas for the new Government, did not, for instance, mention either door step lending nor payday loans, a type of borrowing that can see borrowers charged 2,000 per cent annual percentage rate for short-term loans.

Vera Cottrell, the policy adviser on personal finance issue at Which?, the watchdog, said: “If you want to limit the damage done by excessive interest rates, you have to extend the limit to other forms of credit as well.

“Banning high rates on store and credit cards does not solve the problem, if consumers merely shift their borrowing onto another form of debt.”

Despite the Bank of England cutting interest rates to a historic low of 0.5 per cent, many forms of borrowing have crept up during the last two years. According to the Bank the average credit card rate has increased from 15.26 per cent to 16.53 per cent.

And moneysupermarket.com, the price comparison website, points out that there a handful of cards – available to those with a poor credit score – that charge more than 30 per cent, such as the Vanquis Bank card, which charges 39.9 per cent.

Burtons, the menswear store, has a card which charges 29.9 per cent, but most store cards are below 25 per cent.

In 2007 the Competition Commission ruled that store card APRs were too high, at a time when the average rate was about 28 per cent. Now providers that charge more than 25 per cent must point out on monthly statements that cheaper credit may be available elsewhere.

Most experts believe that the Government will use the Competition Commission’s figure of 25 per cent when it comes to deciding what is excessive.

The rule change did, very slowly, help bring down the average rate.

Financial experts were also encouraged by the Government’s promise to look once again at the contentious issue of “unfair” bank charges, which sometimes see consumers hit by a £30 or even £39 charge every time they breach their overdraft limit.

The document said: “We will introduce stronger consumer protections, including measures to end unfair bank and financial transaction charges.”

However, there was no mention of help for those who had been hit by excessive bank charges in the last few years. At least one million, and possibly far more, have been hit by these charges adding up to billions.

Nick Clegg said before the election he wanted current account providers to return unfair fees already levied, despite banks winning the historic test case last year.

Dan Plant, an analyst at the consumer website MoneySavingExpert, said: “While this is a positive step, it does not help the millions already hit with rip-off fees.”

Ann Robinson, director of consumer policy at uSwitch.com, welcomed the announcement. “This is great news for consumers at what is otherwise a difficult time. By demanding greater transparency with credit cards, store cards and energy bills the government is finally giving consumers the level playing field they have so desperately needed,” she said.

The credit card industry was taken by surprise by the move. A spokesman for the UK Cards Association, the trade body, said: “The DTI looked at a cap back in 2004 and decided there was no need for one. The devil will be in the detail. We need to speak to the Government to understand exactly what they mean.”

Source: telegraph.co.uk

The UK government has pledged to give new powers to the likes of the Office of Fair Trading in relation to so-called excessive credit card interest rates. However, while many people have welcomed the move by the government do we really need help in controlling our credit card spending?

The truth is that credit card spending has spiraled out of control over the last decade in the UK with personal debt, including credit card debt, now in the region of £1.3 trillion. Unfortunately, while there have been instances of credit card companies increasing interest rates to unsustainable levels the truth is that without credit card debt there would be no interest charges to pay.

There are certain circumstances where credit cards are very useful but ultimately if we allow your credit card balance to get out of control then who do we have to blame but ourselves?

The credit card industry in the UK is one of the most developed and most mature markets in the world which is why we see the likes of US giants and other worldwide companies with great exposure in the market. This will continue so long as UK consumers continue to rack up record credit card debt.

Source: FinancialAdvice.co.uk

With the rising mountain of personal debt that has been accrued in the UK many people that go to work and earn a fair wage are still struggling with their debts, and unfortunately their debt problems mean that the money that is coming in is not adequately covering the amount of money that is being paid out.

For those that are working and earning money but have debt problems that are causing concern it can become very difficult to concentrate and focus on work, and this is something that can affect both the employee and the employers. However, one debt charity has stated that employers could be in the perfect position to help employees that are experiencing debt related problems.

According to the Consumer Credit Counseling Service employers have the right resources to help staff members that are suffering due to their debt problems, and something as simple as listening to their issues could help to ease the strain for workers. Employers can also effectively provide workers with information and tools that could help them to sort out their debt problems more effectively, according to the Consumer Credit Counseling Service.

Over the past year debt enquiries relating to employment have increased according to figures released by the Citizen’s Advice Bureau. This included calls relating to redundancy as well as enquiries relating to Job Seekers Allowance.

A spokesperson from the Consumer Credit Counseling Service said: “The UK’s personal debt problem is likely to get far worse over the next year and employers are in an important position to help staff who have a debt problem. Employers can help them by providing information on notice-boards and in staff magazines.”

Source: Thriftyscot.co.uk

In recent years, we have seen a massive financial meltdown due to over-lending, over-borrowing and poor regulation say Cameron & Clegg in The Coalition: a Programme for Government, which sets out the Government’s plans for the next five years.

BANKING

The Government believes that the current system of financial regulation is fundamentally flawed and needs to be replaced with a framework that promotes responsible and sustainable banking, where regulators have greater powers to curb unsustainable lending practices and we take action to promote more competition in the banking sector.

In addition, we recognise that much more needs to be done to protect taxpayers from financial malpractice and to help the public manage their own debts.

- We will reform the banking system to avoid a repeat of the financial crisis, to promote a competitive economy, to sustain the recovery and to protect and sustain jobs.

- We will introduce a banking levy and seek a detailed agreement on implementation.

- We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.

- We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry.

- We will develop effective proposals to ensure the flow of credit to viable SMEs. This will include consideration of both a major loan guarantee scheme and the use of net lending targets for the nationalised banks.

- We will take steps to reduce systemic risk in the banking system and will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way; while recognising that this will take time to get right, the commission will be given an initial time frame of one year to report.

- We will reform the regulatory system to avoid a repeat of the financial crisis. We will bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation.

- We rule out joining or preparing to join the European Single Currency for the duration of this agreement.

- We will work with the Bank of England to investigate how the process of including housing costs in the CPI measure of inflation can be accelerated.

- We will create Britain’s first free national financial advice service, which will be funded in full from a new social responsibility levy on the financial services sector.

- We take white collar crime as seriously as other crime, so we will create a single agency to take on the work of tackling serious economic crime that is currently done by, among others, the Serious Fraud Office, Financial Services Authority and Office of Fair Trading.

Source: myIntroducer.com