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Wells Fargo, JPMorgan settle mortgage kickbacks probe

WASHINGTON (AP) — Wells Fargo and JPMorgan Chase have agreed to pay more than $35 million combined to resolve claims that loan officers at the two banks received kickbacks in exchange for steering mortgage borrowers to a Maryland title company.

The Consumer Financial Protection Bureau said Thursday that JPMorgan and Wells Fargo each agreed to consent orders filed in federal court to settle the claims.

Wells Fargo has agreed to pay $24 million in civil penalties and $10.8 million to consumers affected by the scheme. JPMorgan is to pay $600,000 in penalties and about $300,000 in redress.

The CFPB and the Maryland attorney general found that loan officers at the banks referred borrowers to a now-defunct title company, Genuine Title, in exchange for cash and marketing services.

Federal law prohibits giving anything of value in exchange for a referral of business related to a real estate settlement service.

According to the CFPB, loan officers at Wells Fargo and JPMorgan sent homebuyers financing a mortgage through the banks to Genuine Title, which provided real estate closing services.

In return, the title company, which went out of business last April, provided the loan officers with cash, as well as consumer information and marketing services aimed at helping them drum up more loan business, the CFPB said.

“These banks allowed their loan officers to focus on their own illegal financial gain rather than on treating consumers fairly,” said CFPB Director Richard Cordray.

The CFPB noted that more than 100 Wells Fargo loan officers in at least 18 branches, mainly in Maryland and Virginia, participated in the scheme, referring thousands of loans to Genuine Title.

The agency also contends that Wells Fargo failed to stop the scheme, even though it had multiple warnings of what was going on, including a federal lawsuit that alleged the bank’s loan officers had illegal arrangements with the title company.

In a statement, Wells Fargo spokesman Tom Goyda said the bank has fully cooperated with the CFPB, fired the employees who were involved in the scheme and taken steps to enhance its procedures to provide greater oversight and monitoring of both the process and its employees.

The agency found that at least six Chase loan officers in three different branches in Maryland, Virginia and New York were involved in the scheme.

Jason Lobo, a spokesman for Chase Mortgage Banking, said the bank’s own investigation into the kickback scheme found six of its mortgage loan officers received marketing services, though not any cash, in return for steering borrowers on 191 loans to Genuine Title.

“We also found no evidence that borrowers incurred title fees in excess of the market rates,” he said.

Four of the Chase loan officers had left the bank when the scheme was uncovered. The bank fired the two others who remained, Lobo noted.

FinanceLoansJPMorgan Chase […]

China central bank tightens loan, deposit measurement as shadow banking surges

BEIJING (Reuters) – China’s central bank is adjusting the way it measures bank deposits and loans, in a bid to increase supervision of cash in the banking system at a time shadow bank activity has seen a resurgence.

The move comes as freshly-released December loan data shows that the shadow banking portion of what China calls “total social financing” was the highest since January 2014, reversing the trend of shrinking off-balance sheet credit seen in most of last year’s second half.

The steps the People’s Bank of China (PBOC) are taking also show that its recent tweak to how loan-to-deposit ratios banks are calculated was not a form of monetary easing, but instead a preliminary step to applying further pressure on shadow banking.

According to a transcript of an official briefing to domestic media seen by Reuters on Thursday, the PBOC will include deposits by non-deposit-taking institutions made in accounts at banks deposit-taking institutions in calculations of deposits, and will include lending by deposit-taking institutions to non-deposit-taking institutions in loan calculations.

BROKERAGE MARGIN DEPOSITS

The transcript made particular mention of margin deposits from brokerages at banks. Regulators have signalled concern that a massive stock market rally set off in November is at risk of over-heating, given large quantities of cheap leverage provided through brokerage margin accounts.

The transcript quoted comments by Sheng Songcheng, the head of the PBOC’s statistics department, during a question-and-answer session to which foreign media were not invited.

“The changes in calculating deposit and loan items are aimed at making (Chinese standards) gradually be in line with usual international practices,” Sheng was quoted as saying.

“As these changes are aimed at more accurately reflecting the reality of social deposits loans, as well as liquidity conditions, people should not read too much into them on the policy front.”

Despite the crackdown, off-balance sheet lending led by entrusted loans and trust loans shot up in December, official data showed on Thursday, even as traditional yuan loans fell far short of expectations.

“Shadow banking is back with a vengeance, and I’m not sure why the year ended this way but it’s clear that there is a lot of money creation outside of the banking system,” Dariusz Kowalczyk, an economist at Credit Agricole CIB.

In December, Chinese banks extended far less credit than expected in December, despite instructions by the PBOC to lend more in the last months of 2014 to support the slowing economy.

(Reporting by the Beijing Newsroom; Additional reporting by Lu Jianxin and Pete Sweeney in SHANGHAI, and Jake Spring in Beijing; Editing by Richard Borsuk)

FinanceBanking & Budgetingbank depositsPBOCbanking system […]

Alabama Payday Loan Database Still on Hold – WTVY

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MONTGOMERY, Ala. (AP) — A database to track payday loans in Alabama remains on hold because of a court fight.

The Montgomery Advertiser reports the system isn’t being implemented while the loan industry tries to block it.

The database is aimed at improving enforcement of a $500 limit on the amount of payday loans a person can have. But payday lenders sued Alabama’s Banking Department to block creation of the system last year.

A judge in Montgomery ruled against the industry in August and the industry appealed.

Banking Department attorney Elizabeth Bressler says the state hopes to have a final decision soon.

The state signed a contract with a Florida company to build the database, and legislators approve the deal earlier this month. But the work remains on hold because of the litigation.

[…]

Dear John: Cash in pension after losing job?

Dear John: I am 58 years old and currently unemployed. I have been in the banking industry for the past 34 years. I lost my job in June.

While I have savings to last me through next July, I have debt that I would like to pay off. I am considering cashing in one of my pension plans with my previous employer. I know cashing in a pension is probably never a good idea unless you roll over, but I would like your advice on my situation.

I have a conventional pension plan worth $185,000 I am looking to cash in. I also have 401(k) plans that I will not touch totaling about $225,000.

Cashing in the $185,000 will allow me to pay off my mortgage, credit-card debt and private loans totaling about $60,000.

I am also saddled with student loans for my two daughters of about $40,000. Interest on the credit cards run about 9 percent and the mortgage is at 5 percent but only has 2 ½ years left to pay off. The private loan is no-interest, but the student debt is costing me 8 percent.

Payments for this debt total about $2,600 per month. These payments are eating up my savings, but I will still last until July.

Employment prospects do not look good. If I can pay off, I would be free of those payments and might possibly find a lower-paying job and not have to worry about the debt.

My salary in my banking career was in the mid-six figures — good money.

Even after cashing in, I would still have my 401(k) and my Social Security to live on when I reach 62. My wife will have hers at 62 as well.

She only has a small pension due her, which will pay about $150 per month. All of these incomes add up to about $4,700 per month once I formally retire. With no debt, I think am OK.

If I did not cash in the $185,000, that would give me another $1,500 per month. I do not believe I will have to pay any penalty to cash in as I was over 55 when I became unemployed.

I do not want to cash everything in and just live on Social Security alone, or work for the rest of my life. I’d like to find a job I can live with, even at a greatly reduced salary, and not have to worry about bills.

Please let me know your thoughts on my issue. Thanks for your time. Mike

Dear Mike: Ah, the Golden Years! Aren’t they great?

I asked Scott Brewster, a certified financial planner in Brooklyn, to opine on your situation.

“Sorry to hear,” says Brewster, who is a member of the Financial Planning Association. “It must be very stressful after 34 years in the banking industry to lose one’s job making mid-six figures and struggle to find another job.”

Brewster doesn’t think that cashing in your pension early is the solution you need.

“You probably are correct that since you were separated from service after age 55 you might not be hit with the 10 percent penalty on withdrawing your pension money,” he says. If the funds were in an Individual Retirement Account, the early withdrawal penalty would apply until the age of 59 ¹/? .

But Brewster warns that “you will get taxed on the withdrawal, and $185,000 cashed in might only leave you with $110,000 after taxes. Not only that, you would be reducing your retirement nest egg by close to 50 percent.”

He says the real issue is that you are struggling to find work and even with your loans paid off, you are going from making a mid-six-figure income to just looking to get by in a few years on Social Security and a 401(k) that is about equal to what you made in one year while working.

“My action plan for you,” says Brewster, “would be to make getting another job your No. 1 priority. Working on finding your next job eight hours a day is not enough. You need to put in overtime securing your next job so that you not only avoid cashing in your pension but are in a position to keep saving more for retirement and pay off your debts from your income.”

Mike, (this is John speaking) you and I know that the job market stinks and that you are at an age and salary level when employers think they can get a better deal with someone younger.

So you need to make prospective employers know that you don’t have what they call “salary demands.” You have, instead, salary suggestions. And that you are very flexible.

And you need to connect anyone from your previous job who might be able to help you find work. Beg them if that’s what it takes.

“If you work long and hard all the way until next July when your savings will run out, and you do not find a new job, then you can — without guilt — pull money from your pension, because then you have tried everything you possibly could to not do so,” says Brewster.

And even then, Brewster says, he would only pull out what you need to make the minimum loan payments and keep working at the job hunt. “And yes, it is a hunt. You have killed it for a long time, and you need to go back out and continue to kill it,” he says.

“With 34 years of experience under your belt, don’t sell yourself short. This period of unemployment will pass, and if you throw all your energy into getting to the other side, you will be stronger for it and will have your pension still intact along with your 401(k),” Brewster says.

Both he and I wish you the best of luck. Stay optimistic and smile when you interview. Prospective employers like to hire happy people.

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[…]

Want a mortgage? Ditch cash-only, build a credit history

Dear To Her Credit,
My good friend is looking to buy a $69,900 house, but he doesn’t have any credit. He pays all his bills and things with cash.

He’s been working on a farm milking cows for about a year and has a steady check every month. But since he’s just getting his life going, all of his phone bills, car bills and so on are still combined with his mother’s bills. He does pay his half.

He’s trying to get a mortgage plan, possibly with the help of FHA or Fannie Mae’s program. He just needs some good tips or ideas on how to get everything approved. Any advice? — Alexys

Dear Alexys,
He’s been working a steady job, he’s not in debt and wants to buy a house. Sounds like he’s doing pretty well!

Before he can get a home loan, however, he needs to ditch the cash-only lifestyle and build a credit history. Even government homebuyer programs, such as FHA loans, require homebuyers to demonstrate financial responsibility before they qualify for a mortgage. Here’s how he can start building a good credit history:

He needs some kind of credit. He doesn’t need to go into debt; in fact, I hope he doesn’t. He can open a couple of low-limit credit cards, make a few purchases of gas and groceries on them every month and pay them off before the due date. If he has trouble opening a regular credit card with no credit history, he may need to start with a secured card. This is a card that is secured by an account in which he would keep cash equal to the limit on the card. The bank’s interest is secured by the cash account balance. Have him consider being added as an authorized user. By having his mother add him to one of her credit card accounts, his credit history gets the benefit of her account’s good payment history. A couple of caveats: He shouldn’t try this if there’s any chance he could spend more than he can easily pay off every month. And make sure his mother’s account has an excellent payment history or adding his name to it will do more harm than good. He needs to keep an eye on his credit report from now on. He can check his report once a year for free from AnnualCreditReport.com. If he sees any items that are incorrect, he should dispute them immediately. Note: If your friend has truly never had any kind of loan or credit, he may not have a credit report until he opens his own card account or has a loan. He can try to get a small loan from a local bank or credit union. Before getting a mortgage, he should start with a smaller loan to build a pattern of on-time payments that will reassure bigger lenders. Sometimes a local bank or credit union can help out by extending a small personal loan to your friend. By paying back the loan with regular, on-time payments, and with bank reporting those payments to the credit bureaus, a credit history is started.

You say he pays his bills with cash, but I hope he also has a bank or credit union account. Banks don’t report normal checking account activity to the credit bureaus, so having a checking account doesn’t directly affect a person’s credit score. However, as he starts paying credit card bills and applying for a loan, he needs to be part of the banking system. He’ll need other banking services as he gets ready to buy a house, such as getting a cashier’s check for closing.

Building a new credit history is not complicated. After your friend takes a few steps to establish a good credit history, he can start packing. He’s well on his way to buying a house he can call his very own.

See related: 4 ways to build credit without a credit card, Steps to build good credit your first credit card

Want a mortgage? Ditch cash-only, build a credit historyAvoid late payments by setting up auto bill payInheritance spent, bankruptcy loomingFinanceCreditcredit cardscredit historycredit bureauscredit union […]

University Bancorp Signs Agreement to Acquire Final 20% of Midwest Loan Services for $3.1 Million

ANN ARBOR, MI–(Marketwired – Nov 24, 2014) – University Bancorp, Inc. (OTCQB: UNIB) announced that it executed an option agreement that gives it the right to acquire the final 20% of Midwest Loan Services Inc. that it does not own for total consideration of $3,101,463.57. The consideration to be paid at closing will be:

Cash of $521,389.89; 309,361 newly issued shares of University Bancorp common stock valued at $6.95 per share, or $2,150,061.40, approximately 6.11% of the pro forma issued and outstanding shares of University Bancorp’s common stock; and Additional potential interest earn-out from interest on our zero interest rate cost mortgage subservicing escrow deposits of $430,012.28, as discussed below.

Currently University Bancorp owns 100% of University Bank which owns 80% of Midwest Loan Services, a residential mortgage subservicing firm based in Houghton, Michigan which manages over 100,000 residential loans totaling over $15.8 billion for over 360 financial institutions nationwide. The American Bankers Association, through its Corporation for American Banking subsidiary, recently exclusively endorsed Midwest Loan Services to provide an array of residential mortgage subservicing services to member banks and their borrowers nationwide. Midwest is known for friendly, responsive service and industry-leading technology that help lenders retain customers, reduce costs and ensure regulatory and operational compliance. The ABA’s exclusive endorsement was based on both Midwest’s superior technical solution and its superior customer service. Midwest’s customers have 14x fewer complaints than the industry average for the nine months ended September 30, 2014 according to the Consumer Financial Protection Bureau consumer complaint database, despite the fact that 58% of all the complaints in the CFPB database relate to residential mortgage servicing. Since 2001 Midwest has grown its mortgages subserviced at 26% per annum compounded.

We are acquiring the shares from Ed Burger, former Founder and CEO of Midwest, who recently retired. Midwest’s President & CEO is currently Peter T. Sorce, a credit union and banking industry veteran with 23 years of experience in the mortgage servicing industry. Since Mr. Burger owns 20% of Midwest, this places a value on Midwest of $15.5 million versus Midwest’s shareholders equity as of 9/30/2014 of $10.75 million. Our legal counsel is unaware of any regulatory requirement to seek approval of the transaction since it would result in a 100% owned subsidiary of the Bank, however we are in the process of confirming with our regulators that no approval is required, and if we receive that confirmation we intend to immediately close the acquisition. If the transaction had closed 9/30/2014, we currently estimate that the book value per share of common stock of University Bancorp would have increased from $2.174 to $2.466 per share, or an increase of $0.292 per share.

President Stephen Lange Ranzini noted, “The book value of Mr. Burger’s shares in Midwest Loan Services as of 9/30/2014 was $2,150,061.40; therefore, the bank would pay a premium of approximately $950,000 for his shares, which is reasonable considering the long history of profitability and growth of the firm and that it controls about $190 million in zero interest escrow deposits. Midwest and the zero interest rate cost mortgage subservicing escrow deposits that it controls are a cornerstone of the Bank’s profitability and owning 100% of the firm greatly enhances the value of the Bank and its earnings as interest rates begin to normalize from record low levels.”

With respect to the $430,012.28 interest earn-out, we will pay to Mr. Burger in cash following each month-end period, 20% of the amount of the average monthly balance of Midwest escrow deposits held at University Bank and the Federal Home Loan Bank of Indianapolis, or any other depository where University Bank actually receives the benefit of interest earned on these escrow deposits, times the Fed Funds interest rate minus 0.5% with a floor of 0%, until the cumulative sum of $430,012.28 is paid. If interest rates never rise, no amounts will be owed. For example, if the Fed Funds rate is 1.0% and the sum of the average monthly balance of Midwest escrow deposits held at University Bank and the Federal Home Loan Bank of Indianapolis continues to be $190,000,000, then the monthly payment would be $15,833.33 (20% x $190,000,000 x (1%-0.5%)/12) until the cumulative sum of $430,012.28 is paid. If interest rates rise, University Bank will continue to benefit from 80% of the increase until the contract is fulfilled and then 100% after. The Federal Reserve Bank currently projects that the normalized Fed Funds Rate is currently 3.75%.

Because there is an insufficient number of authorized and unissued shares of common stock to complete the deal, the board of directors has authorized and has the authority to create a new series of convertible stock that would be issued to Mr. Burger, and plans to call a special shareholder meeting to increase the authorized number of shares of common stock so that these convertible preferred shares can then be converted into common stock. We hope to both close the transaction and call the shareholder meeting prior to year-end.

Shareholders and investors are encouraged to refer to the financial information including the audited financial statements, Company strategic plan and prior press releases, available on our investor relations web page at: http://www.university-bank.com/bancorp/.

Ann Arbor-based University Bancorp owns 100% of University Bank which, together with its Michigan-based subsidiaries, holds and manages a total of over $16 billion in loans and assets and our 336 employees make us the 9th largest bank based in Michigan. Founded in 1890, University Bank® is proud to have been selected as the “Community Bankers of the Year” by American Banker magazine and as the recipient of the American Bankers Association’s Community Bank Award. University Bank is a Member FDIC and an Equal Housing Lender. The operating subsidiaries of University Bank which are members of our corporate family, ranked by their size of revenues are:

University Lending Group, a retail residential mortgage originator based in Clinton Township, Michigan; Midwest Loan Services, a residential mortgage subservicer based in Houghton, MI; University Islamic Financial, an Islamic banking firm based in Farmington Hills, MI; Community Banking, based in Ann Arbor, which provides traditional community banking services in the Ann Arbor, Michigan area; Ann Arbor Insurance Centre, an independent insurance agency based in Ann Arbor.

CAUTIONARY STATEMENT: This press release contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning future business development, pre-tax income and net income, budgeted income and capital levels, the sustainability of past results, and other expectations and/or goals. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting our operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

[…]

Home Credit and Finance Bank Selects Earnix Banking Solution to Enhance Analytics Capabilities

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Earnix

The use of our product enables our customers to stay ahead of their competition. We are looking forward to a long-term relationship with the bank’s analytical teams and managers

Tel Aviv, Israel (PRWEB) November 21, 2014

Earnix, a leading provider of integrated pricing and customer analytics solutions for banking and insurance, announced today that Moscow-based Home Credit and Finance Bank, has selected the Earnix Banking solution to enhance the bank’s analytics capabilities and optimize its strategies for its cash loan portfolio.

The Earnix platform helps banks eliminate the “guesswork” when it comes to decision making. Earnix Banking predicts, simulates and optimizes customer interactions to efficiently achieve business goals such as profitability, market growth or long-term customer retention. Home Credit will be implementing the Earnix Banking solution as part of a two phase project, beginning with data analytics and modeling, followed by optimization of its cash loan portfolio and field testing.

“We are extremely proud that Home Credit & Finance Bank, the leading player in POS finance in Russia, selected the Earnix software”, said Amitai Ratzon, VP of Sales at Earnix. “The use of our product enables our customers to stay ahead of their competition. We are looking forward to a long-term relationship with the bank’s analytical teams and managers”.

About Home Credit & Finance Bank, LLC
Home Credit & Finance Bank specializes in retail finance in Russia and Kazakhstan. HCFB offers its clients a wide range of credit products and banking services. The Bank’s database comprises over 30.2 million contacts. HCFB’s products are distributed through over 93,000 points of sale in Russia and Kazakhstan. The Bank’s network also comprised 9,733 branches and offices and 1,293 ATMs across the Russian Federation and Kazakhstan as of 30 June 2014.

Apart from a full range of consumer lending products HCFB offers current and saving accounts and a comprehensive range of deposit products, including salary accounts. Having a vast client database, HCFB is successfully utilizing its cross-selling opportunities to further expand its coverage. HCFB utilizes direct mail, telemarketing, on-line sales and various forms of partnerships (e.g. agreements with insurance providers in Russia, third party brokers or via direct collaborations with employers).

About Earnix
Earnix Integrated Pricing and Customer Analytics software empowers financial services companies to predict customer risk and demand and their impact on business performance, enabling the alignment of product offerings with changing market dynamics. Earnix combines predictive modeling and optimization with real-time connectivity to core operational systems, bringing the power of analytic driven decisions to every customer interaction. Banks and insurers rely on Earnix solutions to improve deposit, loan, and insurance policy offerings. For more information, visit http://www.earnix.com.

Contact person:
Aviv Cohen, Vice President of Products & Marketing
Earnix Ltd.
aviv(at)earnix(dot)com
+972-3-753-8292


[…]

Attorney General Kane files lawsuit over alleged illegal payday loan …

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Attorney General Kathleen G. Kane today announced a consumer protection lawsuit against a Texas-based company for allegedly engineering an illegal payday loan scheme over the Internet. According to the lawsuit, the defendants allegedly targeted Pennsylvania consumers in violation of state law.

The civil lawsuit was filed in the Court of Common Pleas of Philadelphia County against Think Finance Inc. (formerly ThinkCash), TC Loan Services LLC, Elevate Credit Inc., Financial U LLC and former Chief Executive Officer Kenneth E. Rees. Rees and the companies use an address of 4150 International Plaza, Suite 400, Fort Worth, Texas.

Payday loans, which typically charge interest rates as high as 200 or 300 percent, are illegal in Pennsylvania. According to the lawsuit, Think Finance targets consumers in Pennsylvania using three Native American tribes, who function as the apparent lender, as a cover. In turn, Think Finance earns significant revenues from various services it charges to the tribes.

According to the lawsuit, before establishing these tribal partnerships, the company allegedly used the cover of a rogue bank based in Center City Philadelphia, in what is commonly referred to as a “rent-a-bank” scheme, until the federal government shut down the bank.

A Think Finance press release in 2013 stated the company had more than $500 million in revenues – up from $100 million in 2010 – and had provided more than $3.5 billion in loans to 1.5 million consumers in the U.S. and internationally.

Also named in the lawsuit is an Internet marketer, Selling Source LLC, which used its “MoneyMutual” website and television commercials to generate online leads for high-rate lenders, including at least one tribal lender.

Selling Source allegedly made referrals of Pennsylvania residents to the scheme for a commission, even after it was ordered to stop those referrals in a 2011 agreement with the Pennsylvania Department of Banking. The lawsuit also includes various debt collectors as defendants, including the Washington-based law firm of Weinstein, Pinson and Riley PS, Cerastes LLC and National Credit Adjusters LLC, which are allegedly utilized to collect debts derived from illegal loans.

Attorney General Kane explained that in operating and participating in the scheme, the defendants are accused of violating several Pennsylvania laws including the Unfair Trade Practices and Consumer Protection Law, the Corrupt Organizations Act and the Fair Credit Extension Uniformity Act.

In the lawsuit, the Attorney General is seeking, among other things:

Injunctive relief to prohibit defendants from violating Pennsylvania law; Restitution for all consumers harmed by the scheme; Civil penalties of up to $1,000 for each violation of Pennsylvania law; Civil penalties of up to $3,000 for each violation involving a senior citizen; and Notification of credit bureaus to remove all negative information related to the scheme and all references to any of the defendants from consumers’ credit reports.

Attorney General Kane said the Bureau of Consumer Protection has already received information from numerous complaints against these companies, and she believes there are many more victims who have not yet filed a complaint.

“Any Pennsylvania residents with problems or complaints involving payday loans or related debt collection should get in touch with us immediately,” said Attorney General Kane.

Consumers can call the Attorney General’s toll-free consumer protection hotline at 1-800-441-2555.

The lawsuit was submitted for filing in the Court of Common Pleas of Philadelphia County by Deputy Attorney General Saverio P. Mirarchi of the Attorney General’s Bureau of Consumer Protection. Assisting him, as Special Counsel, is the Philadelphia law firm Langer Grogan & Diver PC.

[…]

Toxic finance: Reckless payday lender Wonga wipes mountain of …

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Toxic finance: Reckless payday lender Wonga wipes mountain of debt

Published time: October 02, 2014 14:55 Get short URL

Reuters/Luke MacGregor

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Thousands of customers who took loans with controversial pay day lender Wonga are to have their debts written off, in an action expected to cost the ‘legal loan shark’ more than 200 million pounds.

The company will wipe the debts of 330,000 customers who are trapped in arrears of 30 days or more, while a further 45,000 customers will get to repay their loans exempt from interest.

The move is a “consequence” of Wonga’s discussions with the Financial Conduct Authority (FCA), who said the firm “was not taking adequate steps to assess customers’ ability to meet repayments in a sustainable manner.”

The FCA also said that Wonga did not do enough to vet customers and their ability to pay back the interest incurred on loans, which can be higher than 5,000 percent.

As a result, a large number of Wonga customers were forced to admit they were unable to pay the company back after taking out a short-term loan.

“We are determined to drive up standards in the consumer credit market and it is disappointing that some firms still have a way to go to meet our expectations,” said the FCA’s Director of Supervision Clive Anderson.

“They [lending companies] need to lend affordably and responsibly,” he added.

Last month, the payday lender recorded a profit loss of 53 percent – one of the largest slumps in its operating history.

The lender revealed its pre-tax profit in 2013 was 39.7 million pounds, down from 84.5 million the previous year.

Wonga said the fall was due to “remediation costs” – money that it had to pay back to its customers – including 2.6 million pounds it had to pay out to more than 45,000 customers after it delivered debt collection letters from non-existent law firms.

However, Wonga did record a 15 percent rise in the number of loans issued between 2012 and 2013, worth 4.6 million pounds.

Wonga’s Chairman Andy Haste told British media there was a “real and urgent” need for change.

He also told the BBC it expected to be “smaller” and “less profitable” following increased FCA regulations, which include more stringent background credit checks.

“Our regulator is determined to improve standards in consumer credit and I share that determination,” he said.

“There is much to do in order to make Wonga a sustainable and accepted business, and today’s announcement is a significant step forward in that process.

Labour MP John Mann called for Wonga to be brought before Parliament’s Treasury Select Committee to “explain how they lent so much money to people it knew could never afford to repay it.”

“Sadly, it comes as no surprise to learn that Wonga knowingly lent money to people who will never be able to afford to repay a loan and it is morally right that they have been forced to write off these loans,” he added.

This is not the first time Wonga has come under heavy criticism for its practices.

Since July, the firm has not been allowed to produce advertisements designed to attract young people, such as its campaign that used puppets, screened during children’s television programming – an attempt to soften the brand, critics allege.

In 2012, Wonga was also forced to apologize to Labour MP Stella Creasy after she received personal abuse via Twitter, calling her “nuts,” “pathetic” and “a raving self-publicist.”

The MP has long been outspoken on payday loan companies, and has lobbied the government to set a cap on the amount customers can be charged for small, short term loans.

While the MP welcomed the fall in Wonga’s profits, she said the rise in the number of loans being issued should be a cause of concern.

“The fact that they are reporting a 15 percent increase in customers for this toxic form of finance reflects that there are still millions of people for whom there is too much month at the end of their money,” she told the Financial Times.

Under new rules issued by the FCA, payday lenders will not be able to reclaim debts directly from customers’ bank accounts, while a cap of 0.8 percent interest per day has been proposed for short term loans.

According to the UK’s Public Accounts Committee, around 2 million people in the UK used payday loans, while the Office of Fair Trading believes around 1.8 billion pounds is loaned in high cost plans each year.

[…]

Banks offer cash to lure customers

BANKS are offering steep interest rate discounts and even throwing money at home buyers as they compete for a slice of Australia’s booming housing market.

WITH demand from home buyers heating up across most capital cities, lenders are doing all they can to snare new customers.

National Australia Bank stepped things up a notch on Monday by offering a free $1,000 gift card for customers who take out a loan of $300,000 or more. Canstar research analyst Mitchell Watson said with interest rates low across the board and most banks offering similar terms and conditions on loans, lenders were increasingly looking for extra incentives to attract customers. “There does seem to be a trend with offering incentives,” he said. “Home loan features are now fairly homogeneous and rates are fairly competitive across the board so offering incentives like this will make a product stand out.” University of New South Wales economist Tim Harcourt said the incentives and discounts on offer were a sign that competition was strong in the banking sector. “It shows even with the four pillars system there is still plenty of competition,” he said. NAB is not the only bank offering a cash incentive to borrowers, with the Commonwealth Bank providing a $1,000 rebate to first home buyers . Meanwhile, Westpac says it is not currently providing any additional monetary incentives but does offer a discount of 0.7 per cent or more on its standard variable rate. ANZ did not respond to questions about what incentives it offered. A recent report by JP Morgan found all the major banks were offering significant home loan rate discounts, with wealthy borrowers receiving the best deals. The report found first home buyers were often only able to access a discount of 20 percentage points, while richer and apparently safer borrowers were receiving up to 140 percentage points off their loan. Mr Watson warned buyers not to be taken in by the incentives and to instead focus on getting the lowest rate and most flexible loan available. “While $1,000 will help you now, a lower rate will help you over the next five to 15 years,” he said. Meanwhile, ratings agency Moody’s recently warned banks were lending money at a faster rate than they were taking in deposits, meaning they were increasingly reliant on international wholesale funding markets. That could affect the banks’ credit ratings, especially if lending continued to grow, the agency warned. But Dr Harcourt said there were no signs banks were taking on too many risks to increase their loan books. “I don’t think any of those major four banks would do anything too silly given the experience of the GFC,” he said.

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