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Rentech Secures Additional Loan Commitment of up to $63 Million from Blackstone’s GSO Capital Partners

LOS ANGELES–(BUSINESS WIRE)–

Rentech, Inc. (RTK) announced today that GSO Capital Partners LP (GSO), the credit investment arm of Blackstone, has increased its credit facility for Rentech by up to $63 million. The majority of the proceeds from this new facility are expected to fund completion of Rentech’s Canadian wood pellet projects through positive cash flow. Rentech now estimates the cost to complete the construction of its Canadian wood pellet projects to be $125 to $130 million.

“We appreciate the support GSO Capital Partners continues to provide us, this time in the form of additional term loans,” said Keith Forman, President and CEO of Rentech. “The task at hand remains clear–to complete the construction and commissioning of, and to place into service, our new pellet facilities in Canada. This will be done in as timely and safe a manner as possible to preserve profitability for our investors. At the same time, we will continue our focus on operating our fertilizer assets profitably, safely and efficiently. We will work to simplify our capital structure and add to our liquidity in the future. Our focus on cost containment is an ongoing process and will continue to evolve, as indeed our company will evolve, over the next year.”

GSO Term Loan

The new lending commitment, in the form of a two-tranche delayed draw term loan, will be available for up to one year. One tranche of the term loan allows Rentech to borrow up to $45 million, of which Rentech has initially borrowed $25 million. The company expects the $45 million tranche to fund construction, working capital and other costs of the Atikokan and Wawa pellet projects until they generate positive cash flow. Rentech may utilize the remaining commitment, of up to $18 million, in the event of certain unplanned downtime at the East Dubuque facility, or unfavorable changes in commodity prices that affect cash distributions from Rentech Nitrogen Partners.

The term loans mature on April 9, 2019. The loans are secured by, among other things, a fixed number of units of Rentech Nitrogen owned by Rentech as well as certain other assets of Rentech and its subsidiaries. The new loan has an interest rate of LIBOR plus 900 basis points per annum, with a LIBOR floor of 1.00%. Rentech also increased the collateral securing its obligations under the preferred stock holders’ existing put option right agreements. Additional details about the terms of the financing will be provided in a Form 8-K that Rentech will file with the Securities and Exchange Commission.

Canadian Wood Pellet Projects Update

Rentech expects that the new term loan, together with its other cash resources, will be sufficient to fund its Atikokan and Wawa pellet projects until they have been commissioned and begin to generate positive cash flow. Rentech currently estimates that the cost to acquire and construct the two plants will be $125 to $130 million, up from $105 million. The majority of the increase is due to delays in construction and higher labor costs for installation of electrical and mechanical components. Rentech expects that working capital and the cost to commission the plants will add approximately $6 to $10 million to the estimated total project cost. Rentech does not expect the plants to generate positive EBITDA or cash flow for the year 2015. Annual stabilized EBITDA projected for both plants remains in line with previous guidance of C$17 to C$20 million.

The Atikokan facility is currently in the commissioning phase and is producing and selling pellets to Ontario Power Generation. Rentech expects the Atikokan facility to be operating at full capacity in six to 12 months.

The Wawa facility is nearing completion of construction. Rentech expects the facility to begin startup and commissioning in the second quarter of 2015 and to operate at full capacity within one year from the start of commissioning.

Expense Reduction Plan

Under the supervision of the Finance Committee, the company engaged an independent consulting firm to assess its cost structure. The company has taken actions to reduce its projected consolidated cash operating costs and expenses in 2015 by approximately $15 million compared to 2014. Cash selling, general and administrative (SG&A) expenses in 2015 for Rentech (excluding Rentech Nitrogen) are expected to be approximately $10 million lower than in 2014, which includes cost savings due to discontinuing energy technologies. Rentech Nitrogen expects 2015 cash operating costs and expenses to be approximately $5 million lower than in 2014, due to, among other things, cost savings from the restructuring of the Pasadena facility. The projection for 2015 reflects $3 million of nonrecurring SG&A expense due to the delayed startup of the Atikokan and Wawa plants. Rentech expects to further discuss its outlook for 2015 on March 17 when it reports results for 2014.

About Rentech, Inc.

Rentech, Inc. (RTK) owns and operates wood fibre processing, wood pellet production and nitrogen fertilizer manufacturing businesses. Rentech offers a full range of integrated wood fibre services for commercial and industrial customers around the world, including wood chipping services, operations, marketing, trading and vessel loading, through its subsidiary, Fulghum Fibres. The Company’s New England Wood Pellet subsidiary is a leading producer of bagged wood pellets for the U.S. heating market. Rentech manufactures and sells nitrogen fertilizer through its publicly-traded subsidiary, Rentech Nitrogen Partners, L.P. (RNF). Please visit www.rentechinc.com and www.rentechnitrogen.com for more information.

Forward Looking Statements

This news release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 about matters such as: the estimated cost of acquiring and constructing the Atikokan and Wawa plants; working capital and startup costs of the two plants; cash flow and EBITDA projections for the plants; timelines associated with various phases of the plants, including operating at full capacity; and anticipated cost savings in 2015. These statements are based on management’s current expectations and actual results may differ materially as a result of various risks and uncertainties. Factors that could cause actual results to differ from those reflected in the forward-looking statements are set forth in Rentech’s press releases and periodic reports filed with the Securities and Exchange Commission, which are available via Rentech’s website at www.rentechinc.com. The forward-looking statements in this news release are made as of the date of this release and Rentech does not undertake to revise or update these forward-looking statements, except to the extent that it is required to do so under applicable law.

ConglomeratesFinanceRentech Contact: Rentech, Inc.

Julie Dawoodjee Cafarella

Vice president of Investor Relations and Communications

310-571-9800

ir@rentk.com […]

Payday loan company: 'Help get your mate into debt and we will give you £20'

A payday lender is offering hard-up customers £20 to drag their friends into debt with them.

Speedy Cash is promoting the “bonus” as an incentive for clients to refer new customers to the lender – just as ­struggling families turn to emergency loans in the run-up to Christmas.

In-store posters and leaflets urge customers: “Send some friends. Earn cash rewards”, adding: “For every friend you send to Speedy Cash, we’ll give you £20.”

They show one person next to £20, two with £40, three by £60 with the words: “And so forth. You get the idea.”

Desperate customers are hit with a representative APR of 2115.69% on 30-day loans taken out.

Payday interest

2115.69%

30 day loan

Campaigners slammed the refer-a-friend scheme.

Stephen Sichel of London Citizens said: “It offers ­incentives for people to exploit their relationships and get friends into debt.

“People feeling the pressure at Christmas need support, not to be encouraged into cycles of debt. They’re preying on people’s vulnerability.”

Poll loading …

Labour MP Paul Blomfield, who has campaigned for a crackdown on payday loans, said: “It’s a nasty ploy. We’ve made enormous progress in regulating this rip-off industry but shameful tactics like this show the need for strong monitoring.

“Payday lenders are always looking for new ways to get people into debt.”

Speedy Cash, which has 23 branches in England and Wales, was rapped by regulators over ads last Christmas offering ­children free photos with Santa in store.

The firm did not respond to requests for comment.

[…]

Apollo Commercial Real Estate Finance, Inc. Closes $50 Million First Mortgage Loan

NEW YORK–(BUSINESS WIRE)–

Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (ARI) today announced the Company closed a $50 million participating first mortgage loan secured by a portfolio of 24 condominiums located in New York City and Maui, Hawaii owned by a luxury destination club. Earlier in the year, ARI provided a $210 million first mortgage loan to the same borrower, secured by an additional portfolio of single-family and condominium destination homes located throughout North America, Central America, England and the Caribbean. With the closing of this transaction, ARI has committed to invest over $1 billion of equity into $1.4 billion of transactions year-to-date.

The fixed-rate, participating first mortgage loan has a five-year term with two one-year extension options and an appraised loan-to-value of 75%. The first mortgage loan was underwritten to generate an internal rate of return (“IRR”)(1) of approximately 8% on an unlevered basis. ARI anticipates financing the loan, and on a levered basis, the loan was underwritten to generate an IRR of approximately 15%.

Loan Repayments

In November, ARI received a $28 million principal repayment and $6 million of deferred interest from a mezzanine loan secured by a hotel in New York City.

About Apollo Commercial Real Estate Finance, Inc.

Apollo Commercial Real Estate Finance, Inc. (ARI) is a real estate investment trust that primarily originates, invests in, acquires and manages performing commercial first mortgage loans, subordinate financings, commercial mortgage-backed securities and other commercial real estate-related debt investments. The Company is externally managed and advised by ACREFI Management, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, LLC, a leading global alternative investment manager with approximately $164 billion of assets under management at September 30, 2014.

(1) The underwritten IRR for the investments listed in this press release reflect the returns underwritten by ACREFI Management, LLC, the Company’s external manager (the “Manager”), calculated on a weighted average basis assuming no dispositions, early prepayments or defaults. With respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, and assumes no defaults. IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. There can be no assurance that the actual IRRs will equal the underwritten IRRs shown in this press release. See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than anticipated” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments shown in the press release over time.

Forward-Looking Statements

Certain statements contained in this press release constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company’s control. These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When used in this release, the words believe, expect, anticipate, estimate, plan, continue, intend, should, may or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; the Company’s ability to deploy the proceeds of its capital raises or acquire its target assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. For a further list and description of such risks and uncertainties, see the reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

FinanceInvestment & Company Informationmortgage loan Contact: Apollo Commercial Real Estate Finance, Inc.
Hilary Ginsberg, 212-822-0767
Investor Relations […]

How Easy Is It To Get An Art-Backed Loan?

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Would you spend more money on art if you thought that you could borrow money against its value? After all, buying art can be an expensive business and collectors are often loathed to part with it. Even collectors who do want to sell soon discover that art is an illiquid asset. If you could borrow against your prized Picasso, so much the better, and if you could borrow that money cheaply and channel that cash into something with a higher yield, art would start to look considerably more appealing as an investment.

The reality, though, is that art is hard to value and hard to authenticate and few mainstream banks want to lend against it. Some banks do offer art-secured loans at very low rates of around 2.5% to 3% to ultra high-net-worth collectors such as Steve Cohen, whose art collection is worth an estimated $1 billion.

Collectors at this level (and let’s face it, not many collectors are) can use these cheap loans to buy property, businesses or even more art, but there’s a big catch, and that it to arrange these loans, banks typically need to hold other assets with that institution that can be used to repay it. These borrowers are essentially taking out a loan against their whole portfolio, not just their art collection. Auction houses such as Sotheby’s and Christie’s also offer loans at competitive rates – as long as you are buying or selling art through them.

It is possible to take out a non-recourse, general purpose loan that is just secured against the value of your art from one of the other specialist lenders in the market. Interest rates here range from high single digits to well over 20%, but most lenders are only interested in making loans of over $500,000 and typically will only lend 40% of an artwork’s value. That means you need to have an artwork worth at least $1.25 million to be considered.

Some companies like Borro will make short-term loans against lower value art and collectibles, but will charge you interest of between 35% and a staggering 83% on an annualized basis. Then there are the so-called loan-to-own lenders, who bet that borrowers will default on the terms of their loan so that they can sell their precious artwork and keep the profits for themselves.

Put all these different lenders together and current size of the art lending market is estimated at £6 billion ($9.6 billion) a year, according to Deloitte and ArtTactic’s 2014 Art & Finance report, which was published last month. When you consider that global art sales last year were an estimated $63 billion, that isn’t very much at all.

However, the same report predicts the art secured-lending market could triple in size with the help of some new art insurance products, including those that allow collectors to keep the art they borrow against hanging on their wall.

If their art is located in the US, collectors can already do this. Under the Uniform Commercial Code, lenders can place a charge on the art collateral in someone’s home, but in most of Europe (except France, Belgium and Spain) and in other major art centers such as Hong Kong, lenders cannot register charges against art assets, so borrowers often have to hand over their art to their lender during the loan, which is not exactly an appealing prospect.

Today, though, some insurance companies are offering new products to protect the lender against the risks of letting the borrower keep the art. If the borrower grants a charge against the art collateral to someone else, or takes off with the art, or refuses to give it up if they default, the insurers will cover the lender for its loss.

Is this really going to result in the rapid growth of the art lending market, though? Dr. Tim Hunter, the head of Falcon Group’s new art division, Falcon Fine Art, which has just launched in London, says the company plans to allow clients in England, Wales and potentially other countries, on a case-by-case basis, to keep possession of their art.

That is certainly a departure from the norm, but the company isn’t relying on insurance to underwrite the risk. “Allowing clients to keep possession of their artworks is an important part of our model, but we’re not relying on any external product that may or may not be able to insure this service,” says Hunter, who is also an art adviser and spent 16 years at Christie’s, where he was a senior director in its Old Master and British Pictures department, a director in its Impressionist and Modern department and head of 19th Century European Art. “Falcon Group have been doing asset-backed financings for 20 years and I have 20 years of experience in the art world. In the end, there’s no short cut to knowing your client.”

Falcon Fine Art plans to offer clients non-recourse loans of one to three years, with the option to extend, financed from the Falcon Group’s own balance sheet. Although the terms will depend on the type of art, Hunter says interest rates will typically be in the high single digits and loan-to-value ratios will be 40%.

However, Paul Ress, managing director of Right Capital, another UK-based art finance company that matches borrowers, either individual collectors or professional dealers, with high-net-worth individuals that are willing to lend, thinks that the new insurance products for art lenders are one of the most interesting developments in the industry.

“They will allow more borrowers to keep collateral, while differential insurance, which hopefully is also coming soon, will insure lenders against a loss of capital if a painting has to be sold and doesn’t cover the amount of the loan. In theory, that shouldn’t be too expensive if you’ve done the right due diligence up front.”

Right Capital, which is about to open an office in Luxembourg, organizes asset-backed, non-recourse loans of between £500,000 and £5 million ($800,000 and $8 million) at interest rates ranging from 8% to 13%. Its typical loan-to-value is 35% to 45% and the company is currently looking at ways to bring multiple lenders into individual loans to spread the risk. Ress hopes that as more companies start offering art loans, there will be more standardization throughout the market, which will bring costs down for borrowers and lenders alike.

Right now, though, organizing art loans is a complex business, because art is a complicated asset. Ress and Hunter say that each loan takes four to six weeks to structure, which includes the time it takes to put together all the documentation on the title of the art, its value, its provenance and authenticity. Valuation is particularly subjective and contentious and art prices are also volatile.

“Valuation can be so variable when it comes to art,” says Ress. “We always form an internal view on what we think the valuation should be, obtain an independent view for the borrower, and insist that the lender obtains their own valuation too.” Even then, he says that lenders are sometimes only comfortable loaning 30% of the value of some contemporary works.

That is why art lending is still a niche market. There may be an increasingly large mountain of money tied up in art around the world, but there’s hardly a flood of new lenders that are dying to serve this market. On that basis, there’s not going to be a three-fold increase in art lending any time soon.

Follow me on Twitter or find me on Facebook.

[…]

Cash warning for university expansion

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18 September 2014 Last updated at 01:21

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Delicious Digg Facebook reddit StumbleUpon Email Print By Sean Coughlan BBC News education correspondent An extra 180,000 students could be added by removing limits on numbers

Related Stories

Student loan system ‘tipping point’ Students ‘worth £264,000 more in tax’ Tuition-fee change savings ‘unclear’

University budgets could be put under “severe strain” by plans to remove limits on student numbers in England, research analysing the proposals warns.

The Higher Education Policy Institute says the increase, announced last year, was “sprung on universities”.

“One critical outstanding question is how the policy is to be paid for,” says institute director, Nick Hillman.

A Department for Business, Innovation and Skills spokesman says it is “removing the cap on aspiration”.

The Higher Education Policy Institute report says the government’s proposals, to be introduced from autumn 2015, are expected to mean a 20% increase in UK undergraduates.

‘Fuzzy’

Such an expansion could “transform lives, improve social mobility and raise economic performance”, says report author Mr Hillman, a former adviser to David Willetts, the previous Universities Minister.

But the think tank’s report says funding arrangements for adding another 180,000 students remain “fuzzy”.

There are warnings of universities having to stretch budgets more thinly

After three years without number controls, there is an anticipated cost of £720m in extra grants and teaching costs and £700m in loan write-off costs.

The option of raising funds by selling the student loan book has been blocked by Business Secretary Vince Cable, who in July ruled out such a sale before the general election.

The report raises concerns that it could mean the existing higher education budget being stretched more thinly, putting pressure on spending per student.

The expansion in student numbers might not be in traditional universities. The report says that international evidence suggests that much of the growth might be in private providers.

Without any limits on numbers, there could be much more recruitment of European Union students, suggests the research.

‘Aspirational policy’

The research concludes that there is a risk of a “substantial decline” in the amount available for each student’s education, or else there could be “changes to student loans to recoup more of the costs” or the “re-imposition of number controls in some form”.

The think tank analyses why the government has made this shift in policy – arguing that abolishing the cap on numbers has political and economic benefits.

Allowing more people to go to university can be “sold as an aspirational policy” in the run-up to the election, the report says.

It also a recognition that increasing graduate numbers is a way of boosting economic performance.

And the report says that since demand for higher education is continuing to rise, the policy is making a “virtue of reality”.

“The decision to remove student number controls is a vote of confidence in universities and young people,” says Mr Hillman.

But he warns: “It is hard to square current forecasts on the future number of students with the expected cuts to public expenditure.

“Spending on each student may come under severe strain whoever wins the next election.”

Wendy Piatt, head of the Russell Group of leading universities, said: “This report is right to highlight the uncertainty behind the government’s plans to increase undergraduate student numbers in England.

“It would be very worrying if this policy leads to less funding per student. Good teaching requires proper levels of investment.”

“Higher education is not something to be piled high and provided on the cheap,” said Sally Hunt, leader of the UCU lecturers’ union.

“While the policy is admirable in its intention to widen access, the government needs to clearly spell out where the extra funding will be found and introduce robust quality controls.

“Recent concerns about for-profit companies milking the system, while delivering qualifications of questionable value, must be properly addressed.”

A Department for Business, Innovation and Skills spokesman said: “Removing the cap on student places will make a reality of the Robbins ambition that university should be open all who are qualified by ability and attainment.

“This year has seen record numbers of young people admitted to university, including the highest ever number of people from disadvantaged areas.

“These crucial reforms, which have removed the cap on aspiration, have been specifically funded in the Chancellor’s last autumn statement.”

[…]

Soccer-Manchester United confirm Falcao one-year loan

* Falcao loan deal confirmed

* Takes United summer spending to $250 million (Adds details, quotes)

LONDON, Sept 2 (Reuters) – Manchester United confirmed they had signed Colombian striker Radamel Falcao on a one-year loan deal from Monaco after the transfer window closed on Monday.

“#mufc is delighted to announce Radamel Falcao has joined on a 1-year loan from Monaco with an option to buy,” the Premier League team said on its Twitter feed.

Falcao was in Manchester for a medical examination ahead of the proposed season-long loan from Monaco, a move revealed to Reuters on Monday by a source close to the deal.

The 28-year-old scored 11 goals in 20 appearances for Monaco after joining from Atletico Madrid for a fee of around 50 million euros (65.65 million US dollar) last year.

“I am delighted to be joining Manchester United on loan this season,” Falcao said on United’s website (www.manutd.com).

“Manchester United is the biggest club in the world and is clearly determined to get back to the top. I am looking forward to working with Louis van Gaal and contributing to the team’s success at this very exciting period in the club’s history.”

Falcao, who missed the World Cup after suffering a serious knee injury, had been linked with several top European clubs, including Real Madrid.

He will compete with regular strikers captain Wayne Rooney and Dutchman Robin van Persie for a place in a reshaped United team.

“I am delighted Radamel has joined us on loan this season,” Van Gaal said.

“He is one of the most prolific goalscorers in the game. His appearance-to-goal ratio speaks for itself and, when a player of this calibre becomes available, it is an opportunity not to be missed.”

Financial details were not disclosed but British media reports suggested the deal cost United 6.0 million pounds (9.96 million US dollar).

Manchester United earlier completed the signing of versatile Netherlands international Daley Blind and the Falcao move tipped the club’s summer spending spree past 150 million pounds ($249 million) following the British record transfer fee paid to Angel di Maria.

They will recoup some of that cash after selling England forward Danny Welbeck to Arsenal, while Mexico striker Javier Hernandez has also departed on a season-long loan to Real Madrid.

United are still looking for their first win under Van Gaal having drawn two and lost one match in the Premier League and crashed out of the League Cup 4-0 to lower league MK Dons.

(1 US dollar = 0.6022 British pound) (Reporting by Ian Ransom in Melbourne, editing by Nick Mulvenney; Editing by Nick Mulvenney)

SoccerSports & RecreationManchester UnitedFalcaoMonaco […]

The Cash Store folds with the loss of 120 jobs

The payday lender’s UK operation, which has its head office in Stockport, has been shut down completely

Almost 120 jobs have gone after payday lender The Cash Store went bust.

The company, which has its UK headquarters in Stockport, has entered into administration with FTI Consulting appointed as administrators.

The Cash Store Ltd is a subsidiary of The Cash Store Financial Services Inc and expanded into the UK from Canada.

It has 506 branches in Canada but its 27 UK outlets – many of which are in the north west – are to close.

Administrators FTI said 13 people have lost their jobs at the company’s UK headquarters in Stockport.

Other branches to have suffered are Bolton, Manchester, Rochdale, Blackburn and Preston.

The Cash Store provides a cheque cashing facility which enables the customer to gain instant cash.

The firm also offered the facility to wire transfer money worldwide to more than 135 different countries.

Cash Store Financial operates its Canada branches under the banners “Cash Store Financial” and “Instaloans”.In a statement the administrators said: “Cash Store was loss making and had been reliant on funding from its Canadian parent company which was recently withdrawn. “Cash Store operated as a pay day loan business from 27 stores in the UK and was FCA regulated. “The majority of the stores were based in the north west of England and yorkshire.”Efforts have been made in advance of the administration to seek a buyer of the business as a going concern. “Unfortunately no offers were received for the business as a going concern. Therefore, the business is ceasing to trade with immediate effect and the loans have been sold to a third party.”Customers will be contacted in due course by the purchaser of the debts with information on how customer accounts will be handled.”Unfortunately all of the Cash Store’s 120 employees will be made redundant, the majority with immediate effect. “The administrators’ team are working with the employees to support them in their applications for statutory entitlements. All employees arrears of wages have been paid in full.”Cash Store Greater Manchester redundancies in numbers:Stockport – 13Ashton – 3Blackburn – 3Bolton – 5Bury – 1Farnworth – 1Manchester Fountain Street – 2Rochdale – 1Wigan – 3 […]

Watchdog plans cap on payday loan charges | Money | The Guardian

Image Payday-loans-campaigners-011.jpg

Payday loans campaigners on Brighton beach ahead of the Labour party conference, 2013. Photograph: David Levene/tha

Payday lenders stand to lose more than two-fifths of their revenues, with smaller firms forced out of business under a further clampdown proposed by the financial watchdog.

People taking out payday loans will never have to repay more than twice the sum they borrowed under the Financial Conduct Authority plans, which it estimates would cost the £1bn payday loan industry £420m in lost revenues.

A borrower could be expected to save £193 a year in charges, the regulator said.

But money-saving experts warned that customers would still face hefty interest charges under the measures.

The regulator’s plan comes a day after newly appointed Wonga chairman Andy Haste announced that he was axing the payday lender’s cuddly grandparent puppets that appear in adverts during children’s TV programmes, as part of an attempt to clean up its act. Haste said he expected the FCA cap would mean Wonga would become a “smaller and less profitable business” in the short term.

The Church of England has condemned Wonga as “morally wrong” and pledged to compete the industry out of existence by boosting credit unions. But Martin Wheatley, chief executive of the FCA, said it was not the regulator’s intention to drive payday lenders out of business. “We recognise that payday lending has a role in society,” he told BBC Radio 4’s Today programme.

The regulator estimates that 1.6 million people took out 10m loans worth £2.5bn last year. More than half of borrowers had to pay extra charges because they did not repay their loan on time. “Unfortunately that has been a big part of the business model, where the profitability comes from, frankly, people who can’t afford the loan, and that is why the additional cap acts as a backstop to stop people ratcheting up loans many, many times the original amount,” Wheatley said.

Under the FCA proposal someone who borrowed £100 from a payday lender and paid it back within the agreed 30 days would pay a maximum of £24 in charges. Fees for late payment would be capped at £15, with a total price cap of 100% of the original loan to stop default charges spiralling out of control.

The FCA said it had tested other price caps, but double the original loan was easy for consumers to understand.

The regulator will publish its final rules in early November following a consultation period, with the aim of having a price cap in force from January 2015.

Stella Creasy, the Labour MP who has led the campaign against payday lenders, said British consumers would be less well protected than those in the US or Japan.

“Anyone who thinks today’s announcement is the end of legal loan sharking in Britain is in for a nasty shock,” she said. “Without further revision, this total cost cap of 100% of the borrowed amount will leave British consumers less well protected than their counterparts in Japan and most of Canada and the United States. Not everyone who takes out a payday loan gets into financial difficulties, but enough do due to the terms and structure of the loans. It is clear the business model is not fair. If the level of the cap does not remove the incentive to do this it is meaningless. That’s why the FCA should, and could, go much further in providing the protection consumers in Britain need from the vicious cycle of debt these loans all too often create.”

The Labour party has called for the cap to be introduced in October to prevent people from overstretching themselves over Christmas.

Debt charities also warned that a cap on loans would not be enough to protect borrowers from irresponsible lending.

“A payday loan cap is not the final piece of the puzzle; consumers need more choice and access to advice,” said Citizens Advice chief executive Gillian Guy. “Not only is the cleanup of the existing market essential, banks need to step up to the plate to offer a responsible micro-loan. Payday loans are often used to cover the cost of daily essentials like gas and electricity bills or rent. The cap has removed some of the gamble of taking out a payday loan, but it is still an expensive form of borrowing.”

The StepChange debt charity called on the FCA to require lenders to share information to prevent consumers taking out multiple loans.

The FCA had previously shied away from a cap on payday lenders because it feared it would drive people desperate for short-term cash into the arms of illegal loan sharks.

Wheatley acknowledged this was a risk: “The actual number of people who consider loan sharks or use them is very very low … it might increase, but frankly that is an illegal segment of the market and we would work very closely with other authorities to ensure that market doesn’t grow.”

[…]

“Straight Talking” Payday Loans Startup Wonga Found Sending …

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Wonga’s unescapable TV advertising campaign, featuring cute ‘elderly’ puppets, carries the company slogan “straight-talking money“. But, following a ruling by UK regulator, the Financial Conduct Authority (FCA), the UK payday loans startup and great European IPO hope, has been found anything but straight-talking.

The FCA ruled today that Wonga had been guilty of “unfair and misleading debt collection practices”, relating to letters it sent to customers from non-existent law firms, presumably in a bid to pressure them to pay up sooner rather than later.

Specifically, between 2008 and 2010, Wonga sent letters from ‘Barker & Lowe’ and ‘Chainey, D’Amato and Shannon’ — two entities that don’t actually exist — to around 45,000 customers, giving the misleading impression that the customers’ outstanding debts had been passed to a law firm. To add insult to injury, Wonga says some customers also paid additional collection charges after these letters were sent out.

So much for disruption; this as about as old skool a practice as it gets in the debt collection industry. In fact, other than $145 milion in VC funding from Balderton, Accel, Greylock, Meritech, Dawn Capital and Oak Investment Partners, I’m having even more trouble seeing how Wonga is any different to many short term loans outfits, including those it claims to disrupt.

The company may well talk up its technological advantage, but its not like other financial services don’t employ a heavy dose of technology to remove friction when lending money or doing credit checks. Fintech, either built in-house or provided by a third-party, has been greasing the dirty wheels of “cheap and easy” consumer credit for a very long time.

In its defence, Wonga says the practice of sending fake legal firm letters was stopped voluntarily by the company in November 2010 and information was provided to the OFT (Office of Fair Trading), Wonga’s regulator at the time, in January 2011. It now has to pay compensation, which could be a cool 2.6 million pounds.

There will be those, of course, who think the regulator hasn’t nearly gone far enough and will question how Wonga, having admitted wrongdoing, can still hold a license to trade. The UK Member of Parliament Stella Creasy has even questioned why there isn’t a criminal investigation.

I’ve asked Wonga what its current procedures for debt collection are, as well as for some other very basic facts, but have yet to hear back aside from being pointed to a conference call for media that took place earlier today and which I was unable to connect.

Of course today’s ruling isn’t the first time the London company has been steeped in controversy. Payday loans companies in the UK have been increasingly feeling the heat, most notably with the Archbishop of Canterbury campaigning against Wonga — despite the Church of England inadvertently holding shares in the company — perhaps kicking talk of a pending billion dollar exit or IPO into the long grass for now.

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Merseyside schoolchildren to be taught about the dangers of using loan sharks

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Youngsters will be given lessons in money management to keep them out of the clutches of violent criminals

Merseyside schoolchildren aged as young as five are being taught about the perils of using loan sharks.

Dozens of primary schools are using ready-made lesson packs – funded from criminals’ confiscated cash – to warn their pupils about the dangers of illegal money-lending.

Youngsters will be given lessons in money management to keep them out of the clutches of loan sharks, who sometimes use intimidation and violence on their victims.

The scheme, organised through the England’s loan shark squad, the Illegal Money Lending Team, has seen a significant take-up from schools in the county.

Councillor Jane Corbett, cabinet member for children’s services in Liverpool, said: “These packs are helping children from their earliest days in school understand about the dangers of loan sharks and through them make their families more aware about their activities.

“It is very important that our young people learn about managing their finances – the better educated they are in this area the less they are likely to become victims of loan sharks later in life.”

Warning children of the dangers of loan sharks reflects the enormity of the problem on Merseyside – a hotspot for illegal money lending.

One illegal lender from Wirral, who was jailed in 2012, charged 2,752% interest on a loan – 161 times more than an average credit card.

Nationally, desperate borrowers hand over £700m a year to unregulated lenders who demand rip-off rates of interest.

Tony Quigley, head of the England Illegal Money Lending Team, said stamping out the scourge of loan sharks meant educating the next generation.

He said: “Money management is a vital part of children’s education, and it is important we develop an understanding of the dangers of loan sharks.

“Not only will this help to send a preventive message, when children reach adult life but it is hoped that they will also share what they have learnt with their families.”

Schoolkids are using the teaching resources to think about their needs and wants, develop an understanding of credit and sensitively look at the issues of loan sharks.

Lesson plans for five-year-olds including a cartoon about a penguin who borrows from a loan shark to fix a broken fishing rod.

Secondary school pupils are looking at real life case studies of loan shark victims and being taught about credit.

Officers from the unit have already visited schools on Merseyside to host assemblies on the issue.

Ruthless loan sharks often resort to violence

Loan sharks will typically appear friendly at first but their behaviour can quickly change.

Many resort to threats and violence to enforce their debts. They operate illegally, and rarely give paperwork, keeping borrowers in the dark as to how much they are paying back.

Some will even take items such as passports as security or even bank cards with the PIN in order to withdraw directly from borrowers accounts.

Tony Quigley, of head of the England Illegal Money Lending Team, said: “An estimated 310,000 individuals across the country are in debt to a loan shark, and we have seen first hand the devastating impact this crime can have on families and communities.

“Loan sharks will trap borrowers into spiralling debt, and have been known to resort to intimidation, violence, threats or worse to force people into paying back far more than they have borrowed and can afford.

“We will not tolerate this criminal behaviour.”

Anyone who has been the victim of a loan shark, or knows of someone who has, can contact the Illegal Money Lending Team in confidence on 0300 555 2222. Lines are open 24/7 and callers can remain anonymous if they wish.

Merseyside loan shark charged 161 times more interest than an average credit card

Gerald Daord, 53, Prenton, Loan Shark

Ruthless Merseyside loan shark made a fortune while exploiting desperate families.

Gerald Daord, 54, charged one customer an exorbitant 2,752% interest on a loan of just £350 – 161 times more than an average credit card – in a four-year period of illegal money lending.

The Birkenhead crook was jailed for 16 months in 2012 and was later made to pay back illicit profits totalling £110,000. When questioned, Daord told investigators he didn’t see it as interest but simply as “a good drink off them.”

Liverpool businessman John Radford, currently serving eight years in prison, locked borrowers into a cycle of debt through eye-watering interest rates backed up by threats.

Former head doorman Radford was branded “as slippery as an eel” by a top judge, who was told one victim’s supposed debt had spiralled to 13 times the original amount.

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