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Financially troubled Metro seeks to borrow $220 million to cover loan

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Metro officials want permission to borrow $220?million to cover a loan coming due in October, as the transit agency continues struggling under restrictions imposed last year after a federal audit found numerous instances of financial mismanagement.

At a time when some Washington-area officials have become increasingly skeptical of the way the Washington Metropolitan Area Transit Authority handles its money, the agency’s chief financial officer plans to ask Metro’s board of directors on Thursday to allow him to seek the short-term loan.

Metro already is juggling several large, short-term loans, borrowed largely to make up for federal grant money that has been slow in arriving. The Federal Transit Administration, which completed the audit in March 2014, has been limiting Metro’s access to grant money until the agency fixes the problems described in the scathing financial report.

Tuesday, D.C. Council Chairman Phil Mendelson (D) called a meeting between Metro board leaders and D.C. Council members in his office to relay concerns about how the transit agency’s financial troubles are being handled. And Wednesday, council member Elissa Silverman (I-At Large) hammered Metro leaders at a public oversight hearing, accusing the board of failing to hold individuals accountable for its financial lapses or to provide a “clear picture” of the agency’s financial state.

“It’s an incredible lack of management for such an important public agency. Yet no one seems to be held accountable for it,” said Silverman, a member of the council’s finance and revenue committee. She also described Metro as an agency “lurching from crisis to crisis.”

A Metro rider is seen through orange construction mesh near an escalator that was being repaired at the L’Enfant Plaza station on Wednesday. (Evelyn Hockstein/For The Washington Post) Metro, which has faced renewed criticism since a deadly smoke incident in a subway tunnel near the L’Enfant Plaza station Jan. 12, is already trying to persuade governments in the District, Maryland and Virginia to commit to providing the cash it needs over the long term to pay for new, safer railcars, as well as other badly needed improvements. If Metro obtains the $220?million loan, it would still need an additional $208?million to cover loans due later this year. It could tap cash reserves, obtain other financing or persuade some of its lenders to extend credit terms. In documents prepared ahead of the Metro board’s meeting Thursday, Metro staff said that despite cash-flow improvements, “pressures remain on the amount and availability of cash in the near term.” Metro’s total short-term debt amounts to $502?million, money that Metro Board Chairman Mortimer Downey said has been used primarily for building projects and improvements. Last month, Wells Fargo renewed an existing $75?million Metro line of credit through March 2016. Metro spokesman Dan Stessel said Wednesday that the transit agency expected to pay off “a significant part” of the remaining debt and was likely to seek credit extensions similar to what it obtained from Wells Fargo on only “a fraction” of the credit. Stessel did not provide specific details of the plan. Metro board leaders have said that they are seeking broad funding solutions within the jurisdictions that subsidize its operations and that it does not plan to increase fares or cut services to cover its costs.A Metro Silver Line train makes it way to Washington, passing another Metro train on a lower rail. (Evelyn Hockstein/For The Washington Post) D.C. Council member Jack Evans (D-Ward 2), who represents the city on the Metro board, said during Wednesday’s hearing that despite his concerns about Metro’s management, the agency needs the cash to expand. “If Metro just stays as it is, it will not fulfill the needs of our region,” said Evans, who led the hearing as chairman of the council’s finance and revenue committee. “We need a larger Metro. We need a Metro that goes more places, that has more cars to carry people.” Silverman, despite her criticism of Metro’s finances, espoused the same sentiments about the transit system’s future growth. But local government officials say they need reassurance that Metro is implementing the FTA’s recommendations to improve the agency’s financial practices before they authorize more funding. Metro’s own audit of its finances for the fiscal year that ended June 30, 2014, is still underway and four months overdue. Acting General Manager Jack Requa told the council hearing Wednesday that the audit was on track for completion in April. “Until there is comfort that the financial management systems and processes are in order, the [chief financial officer] cannot recommend long-term borrowing or additional capital requests beyond safety needs for WMATA,” David Umansky, a spokesman for D.C. Chief Financial Officer Jeffrey S. DeWitt, said later in an e-mail. Umansky said that DeWitt was at Tuesday’s closed meeting between council members and Metro board members, and that “he expressed his continuing concerns about the lack of audited financial statements and the need for WMATA to extend its lines of credit coming due in the upcoming months.” Last March, a federal review painted a troubling picture of the transit agency, questioning Metro’s management of billions of dollars in federal grant money. The review by the Federal Transit Administration found that Metro awarded millions in no-bid contracts, skirted contracting rules and overcharged the government. The problems led FTA to shut down the automatic flow of cash to Metro, instead requiring the agency to manually draw down grant money and comply with grant application procedures. The restrictions are likely to continue through fiscal 2015, according to Metro. Metro Board Chairman Mortimer Downey said Wednesday that even he had been surprised when he read the FTA report. “I take accountability for not knowing it was not done right,” Downey said in response to questions from Silverman. At the behest of members of Congress, the Government Accountability Office has begun its own audit of Metro. Silverman said in an interview after the hearing that Wednesday marked the first time she had heard “a sense of remorse or responsibility” when Downey spoke. But Metro board leaders during the hearing also painted a more positive picture of the agency’s financial recovery.

Requa said the transit agency was “performing to budget with almost $300?million cash on hand, with the ability to make timely payments” to employees and contractors.

Requa described the agency’s success in securing the $75?million credit extension from Wells Fargo. “Financial institutions have confidence in WMATA’s financial capacity,” he said.

Lori Aratani and Robert McCartney contributed to this report.

Abigail Hauslohner covers transportation and development for The Washington Post. Previously, she served as the Post’s Cairo bureau chief.

Paul Duggan covers the Metro system and transportation issues for The Washington Post.

[…]

Cash Advance

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About Cashadvance.comCashAdvance.com has been America’s most trusted resource for cash advances since 1997, connecting millions of consumers to reliable lenders each year. While you have many other channels through which to obtain emergency cash quickly, what makes working with CashAdvance.com so much better?Free and Unlimited UseOur service is always free to the customer whether or not your request is matched with a lender. Additionally, new and returning customers are welcome to utilize our service as much as they need. We dont believe in restriction or practicing bad business tactics.In many cases, customers come to CashAdvance.com after having a bad experience with another online matching service. One of the most common complaints we hear is that another organization either tried or succeeded in making the customer pay just to use a matching service. We would never imagine charging our customers, especially in their time of need.More Lenders. More Choices.In a loan request matching service, you want as many qualified lenders as possible reviewing your information, in the shortest amount of time. CashAdvance.com has the largest network of qualified lenders, so that we can assist in helping to find you the best opportunity and rates for your Cash Advance.Unlike the time and effort made in traveling to different storefront Cash Advance locations, our customers find our online experience to be both easy and quick with more lender choices. Plus, we choose lenders that are consistent with the kind of experience we want our customers to have.Data ProtectionCashAdvance.com is certified by two entirely separate services to ensure that your personal information is secure at all times. In order to protect your information from hackers, we are tested every day, both by McAfee and Norton.We are a proud member of the Online Lenders Alliance (OLA), a national organization dedicated to promoting best practices in the online lending industry. Moreover, we abide by the Federal Trade Commission Act, the Financial Services Modernization Act, the Fair Credit Reporting Act and all other applicable federal laws, including all laws relating to privacy and data protection.Positioned for TrustThe online lending industry has many businesses seeking to take advantage of your urgent need to obtain funds quickly, charging borrowers excessive fees with unreasonably stringent terms attached. Back in the beginning, our organization made a commitment to be upfront, honest and ethical in dealing with customers. We knew that long-term relationships, even if they didnt always result in a match, were far better than pushing customers to something they didnt want.Customers refer their friends and family to CashAdvance.com because in times of need, people want to be treated with respect and work through matters quickly. Plus, we have great agents to help you with questions throughout the process.About this appThis app provides a convenient and easy way to utilize cashadvance.com’s services.It is easy to navigate and provides additional information from cashadvance.com.*This app is provided by a third party affiliate of cashadvance.com. All trademarks and copyrights belong to cashadvance.comContent rating: Everyone

Price0LicenseFreeFile Size1.32 MBVersion1.0Operating System Android System RequirementsCompatible with 2.3.3 and above. […]

The Payday Loan Rule Changes That Only Payday Lenders Want …

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Follow the money: payday lenders gave significant campaign money to legislators who are now trying to undo Washington State’s landmark payday lending reforms.dcwcreations / Shutterstock.com

Washington State passed some of the strongest payday lending reforms in the nation in 2009. But now a group of lawmakers want to scrap those reforms in favor of a proposal backed by Moneytree, a local payday lender.

The rule changes they’re going after limit the size and frequency of payday loans and provide a free installment plan option to help borrowers who can’t pay back their loan when it’s due.

According to data from the Department of Financial Institutions, these reforms hit payday lenders hard. In fact, before the reforms took effect, payday loans were available at 603 locations across Washington and lenders were making more than $1.3 billion in loans per year. Last year, there were only 173 locations and it was a $331 million industry.

Now, a proposal, sponsored by Rep. Larry Springer, D-Kirkland, and Sen. Marko Liias, D-Lynnwood, would replace the payday loan system in Washington with a “small consumer installment loan” system that would clear the way for lenders like Moneytree to start offering 6-month to 12-month loans with effective interest rates up to 213 percent.

The proposed law would also increase the maximum size of a loan from $700 to $1,000 and remove the current eight-loan cap, effectively removing the circuit breaker keeping borrowers from getting trapped in a debt cycle.

What’s more, instead of the easy-to-understand fee payday loans we have now, the new loans would have a much more complex fee structure consisting of an amortized 15 percent origination fee, a 7.5 percent monthly maintenance fee, and a 36 percent annual interest rate.

It is incomprehensible, after years of working on payday reforms that finally worked in Washington, that lawmakers would throw out that law and replace it with one created by Moneytree.” says Bruce Neas, an attorney with Columbia Legal Services, a group that provides legal assistance to low-income clients.

Proponents say the new system could save borrowers money. And they’re right, technically, since interest and fees accrue over the life of the loan. However, a loan would need to be paid off in around five weeks or less for that to pencil out—and that seems highly unlikely. In Colorado, which has a similar installment loan product, the average loan is carried for 99 days. What’s more, according the National Consumer Law Center, “loan flipping” in Colorado has led to borrowers averaging 333 days in debt per year, or about 10.9 months.

While numerous consumer advocates have spoken out against the proposal—along with payday loan reform hawks like Sen. Sharon Nelson, D-Maury Island, and even the state’s Attorney General—few have voiced support for it. In fact, in recent committee hearings on the proposal, only four people testified in favor of it:

Dennis Bassford, CEO of Moneytree;

Dennis Schaul, CEO of the payday lending trade organization known as the Consumer Financial Services Association of America;

Rep. Larry Springer, prime House sponsor of the proposal and recipient of $2,850 in campaign contributions from Moneytree executives;

Sen. Marko Liias, prime Senate sponsor of the proposal and recipient of $3,800 in campaign contributions from Moneytree executives.

Springer and Liias aren’t the only state legislators Moneytree executives backed with campaign contributions, though. In the past two years, executives with Moneytree have contributed $95,100 to Washington State Legislature races.

At least 65 percent of the money went to Republicans and the Majority Coalition Caucus. Which is expected, since Republicans have been loyal supporters of Moneytree in the past. When a similar proposal was brought to the Senate floor two years ago, only one Republican voted against it.

More telling is where the remaining money went. Of the $33,150 Moneytree gave to Democrats, $20,500 went to 11 of the 16 Democratic House sponsors of the proposal and $5,700 went to two of the four Democratic Senate sponsors.

Both the Senate and House versions of the proposal have cleared their first major hurdles by moving out of the policy committees. The bills are now up for consideration in their respective chamber’s Rules Committee. The Senate version appears to be the one most likely to move to a floor vote first, since the Republican Majority Coalition Caucus controls the Senate.

Regardless of which bill moves first, payday lenders undoubtedly want to see it happen soon.

The Consumer Financial Protection Bureau, established by Congress in response to the Great Recession, is poised to release their initial draft of regulations for payday lenders. Although the agency’s deliberations are private, it is widely believed the rules will crack down on the number and size of loans payday lenders can make.

Those rules may well affect Moneytree and other payday lenders Washington.

In the likely chance they do, payday lenders could see their profits shrink. Unless, that is, Washington scraps its current system in favor of one carefully crafted by payday lenders looking to avoid federal regulators.

[…]

Sunesis Announces Amendment to Loan Agreement

SOUTH SAN FRANCISCO, Calif., March 2, 2015 (GLOBE NEWSWIRE) — Sunesis Pharmaceuticals, Inc. (SNSS) today announced the signing of an amendment to its loan and security agreement (the “Loan Agreement”) with Oxford Finance LLC, Silicon Valley Bank, and Horizon Technology Finance Corporation (collectively, “the Lenders”).

The amendment, effective February 27, 2015, creates an interest-only period from March 1, 2015 through February 1, 2016 on the remainder of Sunesis’ loan balance. Principal payments will resume March 1, 2016. In consideration for the amendment, Sunesis will issue the Lenders warrants to purchase an aggregate of 61,467 shares of Sunesis common stock at an exercise price of $2.22 per share. Additionally, the final payment will be deferred by 12 months to the fourth quarter of 2016, and will be increased from 3.75% to 4.65% of the total loan amount, a difference of $225,000. Sunesis entered into the $25 million Loan Agreement with the Lenders in October 2011.

“This amendment to our loan facility provides us with additional financial flexibility to execute our corporate strategy, including the potential submission in 2015 of U.S. and European filings for regulatory approval of vosaroxin in relapsed or refractory acute myeloid leukemia,” said Eric Bjerkholt, Executive Vice President of Corporate Development and Finance and Chief Financial Officer of Sunesis. “We believe that this loan amendment, together with our current cash position, provide us with the resources to fund operations through the first quarter of 2016.”

About Sunesis Pharmaceuticals

Sunesis is a biopharmaceutical company focused on the development and commercialization of new oncology therapeutics for the potential treatment of solid and hematologic cancers. Sunesis has built a highly experienced cancer drug development organization committed to advancing its lead product candidate, vosaroxin, in multiple indications to improve the lives of people with cancer.

For additional information on Sunesis, please visit http://www.sunesis.com.

SUNESIS and the logos are trademarks of Sunesis Pharmaceuticals, Inc.

This press release contains forward-looking statements, including statements related to Sunesis’ overall strategy, the preliminary analysis, assessment and conclusions of the results of the VALOR trial and Sunesis’ other clinical trials, the efficacy and commercial potential of vosaroxin, and the sufficiency of Sunesis’ cash resources and the use of the proceeds under the loan facility with Oxford Finance LLC, Horizon Technology Finance Corporation and Silicon Valley Bank. Words such as “believe,” “expect,” “potential,” “provide,” “through,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon Sunesis’ current expectations. Forward-looking statements involve risks and uncertainties. Sunesis’ actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to Sunesis’ need for substantial additional funding to complete the development and commercialization of QINPREZO, risks related to Sunesis’ ability to raise the capital that it believes to be accessible and is required to fully finance the development and commercialization of QINPREZO, the risk that Sunesis’ development activities for QINPREZO could be otherwise halted or significantly delayed for various reasons, the risk that Sunesis’ clinical studies for QINPREZO may not demonstrate safety or efficacy or lead to regulatory approval, the risk that data to date and trends may not be predictive of future data or results, risks related to the conduct of Sunesis’ clinical trials, and the risk that Sunesis’ clinical studies for vosaroxin may not lead to regulatory approval. These and other risk factors are discussed under “Risk Factors” and elsewhere in Sunesis’ Annual Report on Form 10-K for the year ended December 31, 2013, and Sunesis’ other filings with the Securities and Exchange Commission, including Sunesis’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2014. Sunesis expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Sunesis’ expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.

View photo.FinanceBusinessSunesis Pharmaceuticals Contact: Investor and Media Inquiries:
David Pitts
Argot Partners
212-600-1902
Eric Bjerkholt
Sunesis Pharmaceuticals Inc.
650-266-3717
[…]

Cash rich lenders bankroll Japan Inc's shopping spree

Flush with cash from the Bank of Japan (Tokyo Stock Exchange: 8301.T-JP)‘s (BOJ) stimulus effort, lenders won’t be put off from financing Japan Inc’s habit of paying too much for overseas acquisitions, even as a weaker yen makes those deals more expensive, analysts say.

“The banks need someone to lend to and M&A (merger and acquisition) financing is one of the few growth areas for them,” said Barclays (London Stock Exchange: BARC-GB) bank analyst Shinichi Tamura. As long as a company “looks creditworthy enough to pay back the loan, the banks will be happy to back the deal.”

Deal volumes sank to a twelve-year low in 2014, but a recent flurry of M&A deals suggests Japanese companies are ready to shop overseas again.

Last week, Japan Post made a $5.12 billion bid for Australia’s Toll Holdings (ASX: TOL-AU). On Monday, chemicals company Asahi Kasei (Tokyo Stock Exchange: 3407.T-JP) announced it would buy U.S.-based Polypore (NYSE: PPO)‘s energy storage business for $2.2 billion. On Tuesday, Hitachi (Tokyo Stock Exchange: 6501.T-JP) announced it would buy Finmeccanica (Milan Stock Exchange: FNC-IT)‘s transportation operations for 800 million euros ($909 million).

Whether the companies pay too much for overseas acquisitions is not the banks’ problem, according to Japan Macro Advisors chief economist Takuji Okubo: “That’s the company’s problem – the banks only care about the creditworthiness of the acquirer’s parent company.”

Desperate for borrowers

Japanese banks have faced a predicament for years: despite low interest rates, they can’t find enough borrowers.

The situation took a turn for the worse after the BOJ launched an unprecedented asset purchase program in April 2013. The program involves buying government bonds – the main source of yield income in the past for banks. Yields have trended ever lower but failed to stimulate any new demand for loans.

As a result, margins on bank loans in Japan continue to skim record lows. For example, the lending rate on domestic loans at Mitsubishi UFJ Financial Group (Tokyo Stock Exchange: 8306.T-JP), one of the country’s biggest banks, slipped to 1.10 percent in the last three months of 2014, from around 1.3 percent in early 2013, before the BOJ started its massive asset purchase program.

Read More Is Japan Post overpaying for Toll?

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Flush with cash from the Bank of Japan’s stimulus effort, lenders will keep on financing Japan I …

That makes shorter M&A financing package loans that carry higher risk premiums and yields more attractive for banks, said Barclays’ Tamura. A typical loan will be rolled over into a three- to five-year syndicated loan, he said.

“The banks are desperate and are willing to take on the risks,” said Japan Macro Advisors’ Okubo.

But banks aren’t overly concerned about the risk factor.

“Private sector banks believe the loans carry implicit government guarantees” because public sector banks like Japan Bank for International Cooperation lead the M&A financing consortiums, Okubo said.

Race against time

Japanese companies may not need to worry about financing their overseas shopping sprees, but they should worry about the potential for further yen weakness, analysts said.

Prime Minister Shinzo Abe’s economic policies, dubbed Abenomics, and the BOJ’s quantitative easing efforts have weakened the yen by over 40 percent since Abe returned to power in December 2012. Many analysts expect the yen to weaken further.

“It makes sense for companies to be pre-emptive and do deals before the yen weakens anymore,” said BNP Paribas chief credit analyst Mana Nakazora.

Given strong cash balance sheets and a shrinking domestic market, that appears likely, according to PwC Corporate Finance director Gregory Bournet. He expects the number of outbound M&A deals to rise to 20 percent of all deals in fiscal 2015 from 10 percent in 2014.

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Is Getting a 401(k) Loan a Good Idea?

Don’t do it!

That’s the conventional wisdom about taking out a 401(k) loan. And as someone who took out one, left her job and found herself shelling out big bucks in taxes and penalties, I’m not about to argue with conventional wisdom.

However, people stretched financially thin may think otherwise. They may see their 401(k) account as a tempting source of cash. To help those of you thinking about dipping into your account, we want to take a moment to review what you need to know about these loans. I also contacted two Certified Financial Planners so you wouldn’t have to take my word for it.

I fully expected both planners to say 401(k) loans are nothing but bad news, and certainly, they both expressed extreme concern about people dipping into their retirement savings. But I was also surprised to hear that a 401(k) loan may make sense in some limited situations. Before we get to those, let’s start with the basics of 401(k) loans.

Basics of 401(k) loans

Named after a section of the tax code, traditional 401(k) plans allow you to put money aside, tax-free, for retirement. After a few years of regular contributions, these plans can carry a nice balance, which may start to look like a handy cash cow.

While there is no requirement that 401(k) plans allow loans, many do. Under IRS rules, those that do allow loans can let participants take out up to 50 percent of their vested account balance, or $50,000, whichever is less. Typically, these loans are paid back over a maximum of five years, although, in some cases, a longer payback period may be arranged. On occasion, the IRS issues special rules, such as after hurricanes Katrina, Rita and Wilma when those affected were allowed to take loans for their entire vested balance.

Loans from 401(k) accounts do charge an interest rate, but that money is paid back into the plan. This is one reason they may appeal to some workers. Rather than paying interest to a bank or other lender, the worker keeps the interest to pad their retirement account. In addition, repayments are made via a payroll deduction, which makes them convenient, another bonus for some workers.

Why they aren’t such a hot idea

Despite being an apparent source of easy cash, some finance experts say you should be keeping your hands off your 401(k).

“Your 401(k) is not a savings account,” says Mark Vandevelde, a CFP and wealth partner with Hefty Wealth Partners in Auburn, Ind. “It is money that should be set aside for long-term goals and never to be touched, in my humble opinion.”

As Vandevelde sees it, there are three problems with 401(k) loans:

  1. Lost investment gains that can reduce your fund balance at retirement.
  2. The risk of defaulting on the loan, which could result in taxes and a penalty.
  3. The chance you may reduce your 401(k) contributions to afford the loan repayment amount, which again could affect your fund balance at retirement.

“It’s not free money,” Vandevelde says. “You have to pay it back with regular payroll deductions. Many people end up reducing their actual 401(k) contributions to compensate for the amount they are having to pay back and, therefore, they actually aren’t saving as much.”

On its website, Principal Financial Group has an example of how this may play out. A 35-year-old who takes out a $5,000 loan and pays it back over five years may find himself with $52,000 less at age 65. The calculation assumes a $150 per-paycheck contribution that is decreased by $44 to accommodate the loan repayment.

Keith Klein, a CFP and owner of Turning Pointe Wealth Management in Phoenix, agrees with Vandevelde that a 401(k) loan shouldn’t be your first choice for cash.

“The key to remember is when you take money out, it has to be paid back in five years,” Klein says. “If you default, that money will be considered income, and you’ll have to pay taxes plus a 10 percent penalty.”

Plus, a lot can happen in five years, and if you find yourself taking a new job opportunity, you’d better be ready to pay up.

“A lot of people don’t realize what happens when you leave [or] get fired from your job and you have an outstanding 401(k) loan,” Vandevelde says. “It becomes immediately due and has to be paid in full. If you cannot pay it back, the remaining balance is considered a distribution and is subject to tax and a 10 percent penalty if [you’re] under age 59½.”

When a 401(k) loan might make sense

Despite the financial perils associated with a 401(k) loan, Klein says there may be times when it makes sense to take one out.

“Now, I’m not recommending you take loans out,” he says, “but there are circumstances when life doesn’t go perfectly.”

For example, an older worker who is losing a job may find taking out a loan and letting it default could be a better option than paying their bills with the credit card until they find other employment or are old enough to claim Social Security. While the money will become taxable income, the 10 percent penalty no longer applies once an individual turns 59½.

Divorce or disability could be other scenarios in which a 401(k) loan may be a better way to bridge an income gap in an emergency situation. Still, Klein says it’s not an ideal option. “Having a [cash] reserve is always the best answer,” he notes.

Both Vandevelde and Klein say that, unfortunately, far too many people rush into a 401(k) loan, or they use them for purchases such as vacations, cars or even big screen TVs. For those sorts of purchases, both financial planners agree a 401(k) is not the right source of money.

So going back to the question in the headline: Is getting a 401(k) loan a good idea? Given the drawbacks listed above, it’s probably not ever a good idea, but in some unique situations, it may be the best of your not-so-great options.

Of course, rather than waiting to find yourself in an emergency with limited options, a better course of action would be to get out of debt and bulk up your savings account now. If you’re not sure how, subscribe to the Money Talks News newsletter to get the best personal finance tips and advice delivered straight to your inbox each day.

For more tips on saving for retirement, watch the video below:

Watch the video of ‘Is Getting a 401(k) Loan a Good Idea?’ on MoneyTalksNews.com.

This article was originally published on MoneyTalksNews.com as ‘Is Getting a 401(k) Loan a Good Idea?’.

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CMA finalises proposals to lower payday loan costs – Press releases …

The measures follow the conclusion of a 20-month investigation into the market by a group of independent Competition and Markets Authority (CMA) panel members. The group published its provisional findings in June 2014 and then consulted on its intended proposals the following October.

Online payday lenders will be ordered by the CMA to publish details of their products on at least one price comparison website (PCW) which is authorised by the Financial Conduct Authority (FCA). To ensure that they operate to appropriate standards, the CMA has recommended to the FCA that authorised PCWs should provide customers with clear, objective and comparable information on all potential loan costs, in particular the total amount payable, and have the ability for customers to compare different loans by searching easily on the most relevant features such as loan amount and duration. The CMA believes that one or more commercial PCWs will emerge and be authorised by the FCA, but if this does not happen, lenders will be obliged to set up an FCA authorised PCW.

The CMA has also made recommendations to the FCA to take steps to:

improve the disclosure of late fees and other additional charges help customers to shop around without unduly affecting their ability to access credit improve real-time data sharing between lenders and credit reference agencies ensure that lead generators – websites which sell potential borrowers’ details to lenders and through which 40% of first-time online borrowers access their loans – explain how they operate much more clearly to customers

Finally, online and high street payday lenders will be ordered by the CMA to provide existing customers with a summary of their cost of borrowing. The summary will tell borrowers what the total cost of their most recent loan was, as well as the cumulative cost of their borrowing with that lender over the previous 12 months and how late repayment affected their cost of borrowing.

The measures are designed to tackle problems identified in the final report, where the CMA found that a lack of price competition between lenders has led to higher costs for borrowers. Most borrowers do not shop around – partly because of the difficulties in accessing clear and comparable information on the cost of borrowing and a lack of awareness of late fees and additional charges. Without the pressure to drive down costs, lenders have tended to price their loans at similar levels whilst competing on other factors such as speed – often the initial priority for borrowers.

The CMA also found that many borrowers believe that lead generators are themselves lenders, rather than simply intermediaries. Even where they understand this, most customers are unaware that, rather than matching borrowers with the most suitable or cheapest loan on offer, lead generators sell borrowers’ details to lenders based on how much lenders are prepared to pay for the details, generally selling them to the highest bidder. As a result the CMA does not consider that lead generators have been effective in promoting price competition between lenders even though they have helped to promote the entry into the market of additional lenders.

The CMA’s remedies follow the FCA’s introduction of a price cap for the sector which came into force on 2 January 2015, which is in addition to a number of other FCA measures to increase customer protection that the FCA has introduced over the past year.

Simon Polito, Chair of the CMA’s Payday Lending Investigation Group, said:

The payday lending market is undergoing substantial change as a result of FCA initiatives to eradicate unacceptable practices. Our actions complement the FCA’s measures and are aimed at making the market more competitive and further driving down costs for borrowers.

We expect that millions of customers will continue to rely on payday loans. Most customers take out several loans a year and the total cost of paying too much for payday loans can build up over time. During our investigation, we found that there was often a substantial difference in this market between the most expensive and cheapest deals.

The FCA’s price cap will reduce the overall level of prices and the scale of the price differentials but we want to ensure more competition so that the cap does not simply become the benchmark price set by lenders for payday loans. We think costs can be driven lower and want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans. Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.

Even where borrowers do shop around at present, it is difficult for them to compare prices between short-term loans given the differences between products and the limited usefulness of the APR in making comparisons. Few customers find their lender via existing price comparison websites, which suffer from a number of limitations.

To help them, we are requiring lenders to be listed on price comparison websites authorised by the FCA and have recommended to the FCA that these websites should carry all the information customers need to compare easily the total cost of different lenders’ loans. This will promote competition and provide the incentive for new and existing lenders to compete to offer lower cost loans and win borrowers’ business. It will also make it easier for new entrants that offer lower cost loans to access customers.

We have worked closely with the FCA throughout the investigation and are pleased that the FCA is fully supportive of the remedies in our final report.

In developing these measures the CMA has carried out customer research to inform the design of its remedy package and has consulted extensively with consumer groups and debt charities, lenders, intermediaries, trade associations and a range of other market participants, as well as with the FCA. The CMA will publish an order within 6 months putting in place its requirements in relation to PCWs and borrowing summaries. The FCA will consult in the summer of 2015 on the measures to be introduced in response to the recommendations. The CMA will work closely with the FCA to implement the recommendations.

The final report and all other information on the investigation are available on the payday lending case page.

Notes for editors

  1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission (CC) and the competition and certain consumer functions of the Office of Fair Trading (OFT), as amended by the Enterprise and Regulatory Reform Act 2013.
  2. The members of the Payday Lending Investigation Group are: Simon Polito (Chairman of the group), Katherine Holmes, Ray King and Tim Tutton. Read more on how market investigations are conducted. The OFT referred the payday lending market to the CC on 27 June 2013.
  3. All the CMA’s functions in market investigations are performed by inquiry groups chosen from the CMA’s panel members. In such investigations, the appointed inquiry group are the decision-makers.
  4. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
  5. Following a market investigation the CMA may take action itself, by making an order or accepting undertakings from parties. The CMA may also recommend that action be taken by others such as government, regulators and public authorities. Where the CMA makes such a recommendation, it will be for the person to whom the recommendation is addressed to decide whether to take the recommended course of action.
  6. The FCA assumed responsibility for consumer credit regulation from 1 April 2014, having announced its proposals for regulating consumer credit in October 2013 and confirming additional rules for payday lenders in July 2014. Measures by the FCA to strengthen consumer protection have meant closer regulation of lenders over issues such as limiting rollovers, restrictions on the use of Continuous Payment Authorities to recover debt from a borrower’s bank account, the carrying out of proper affordability checks and sensitive treatment of debt problems. In November 2014, the FCA confirmed details of the price cap which was subsequently introduced on 2 January 2015. On the same day the FCA also introduced rules to address some of the concerns around lead generators identified in the final report which were first highlighted by the CMA in its provisional findings.
  7. Enquiries should be directed to Rory Taylor, (rory.taylor@cma.gsi.gov.uk) or Siobhan Allen, (siobhan.allen@cma.gsi.gov.uk) or by ringing 020 3738 6798 or 020 3738 6460.
  8. For more information on the CMA, see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on markets cases.

[…]

Comment on After Ananda Krishnan loan, 1MDB now needs government cash by Justice Ipsofacto

BY THE EDGE FINANCIAL DAILY
The Malaysian Insider
23 February 2015

1MDB was not only helped by billionaire T. Ananda Krishnan to settle its RM2 billion debt to banks, but it may also require a cash injection of as much as RM3 billion from its owner, the Ministry? of Finance (MoF), say sources.

They say the controversial debt-laden outfit is facing a cash crunch as income from its power assets is not enough for debt servicing and it has run out of borrowing options, as shown by having to turn to a businessman for help.

Ananda provided a 15-month RM2 billion loan to enable 1MDB to settle its loan with a consortium of local banks on February 13.

Sources familiar with the matter confirmed this with The Edge Financial Daily and also expressed their surprise that 1MDB president and group executive director Arul Kanda Kandasamy had dismissed media reports about the loan from Ananda as mere speculation.

Arul had announced on February 13 that 1MDB had settled the RM2 billion owed to the consortium led by Maybank and RHB Bank Bhd which was first due on November 30, 2014. The loan was settled in time to prevent the banks from declaring a default.

Arul did not explain how it raised the money in his February 13 statement, but in an interview with Mingguan Malaysia? two days later, he said reports that AK lent the money were pure speculation.

“Ananda has never said anything about this matter. This is speculation by third parties,” Mingguan Malaysia quoted him as saying.

“I don’t know how he (Arul) can claim that (AK did not help),” says a source.

“It was a simple, clean loan (with no conditions) as AK did not want to be seen as taking advantage (by setting tough conditions).”

In reply to questions by The Edge on why he could not just come out and disclose how 1MDB raised the money, Arul said: “The facts on the (settlement of the) loan will be revealed in the appropriate forum/time i.e. our next set of accounts. To demand any different is to set a different standard for 1MDB which is not only unfair, but also ignoring our right and that of our stakeholders to legal and commercial confidentiality”.

Paying off the RM2 billion debt does not solve the problem for 1MDB, which has total debts of more than RM42 billion and annual debt servicing of RM2.31 billion and a negative cash flow of RM2.25 billion in its financial year ended March 31, 2014.

Sources say that MoF is aware of 1MDB’s cash-flow problem and knows it may have no choice but to step in with a RM3 billion injection.

But in order for that to happen, approval has to be given by the Cabinet, given the large amount of money involved and all the controversy that 1MDB has generated.

The government had on February 11 and 12 raised RM2.1 billion through two treasury bill issues that money market dealers say were unusually large amounts. Sources say the MOF could be getting the money ready should it go ahead and come to the aid of 1MDB.

The cash injection will have to be done before 1MDB’s next financial year close on March 31, 2015 – which is just five weeks away.

?Despite concerns raised by so many parties, MOF officials have always insisted that 1MDB was financially healthy and that the government only had to put in RM1 million as initial capital because the company was strong enough to borrow to fund itself.

Arul, in a February 18 press release on its strategic review, said 1MDB would stop borrowing from now.

Sources say the truth is that 1MDB can no longer go to the market to borrow – whether through bank loans or bond issues.

“The size of its debt of RM42 billion, the massive negative cash flow it has experienced in the last two years plus its struggle to pay the RM2 billion makes it difficult for any bank to lend to them,” says one banker.

“Bond investors will also shy away from any new debt it wants to issue.”

1MDB recently called off a RM8.4 billion Islamic bond that it had planned to raise cash to finance the 3B power project.

Bankers say it was cancelled because of lukewarm response. Sources say bankers have also taken note of the fact that 1MDB has had difficulties proceeding with its plan to float its power assets to raise cash. – February 23, 2015.

[…]

Comment on After Ananda Krishnan loan, 1MDB now needs government cash by waterfrontcoolie

BY THE EDGE FINANCIAL DAILY
The Malaysian Insider
23 February 2015

1MDB was not only helped by billionaire T. Ananda Krishnan to settle its RM2 billion debt to banks, but it may also require a cash injection of as much as RM3 billion from its owner, the Ministry? of Finance (MoF), say sources.

They say the controversial debt-laden outfit is facing a cash crunch as income from its power assets is not enough for debt servicing and it has run out of borrowing options, as shown by having to turn to a businessman for help.

Ananda provided a 15-month RM2 billion loan to enable 1MDB to settle its loan with a consortium of local banks on February 13.

Sources familiar with the matter confirmed this with The Edge Financial Daily and also expressed their surprise that 1MDB president and group executive director Arul Kanda Kandasamy had dismissed media reports about the loan from Ananda as mere speculation.

Arul had announced on February 13 that 1MDB had settled the RM2 billion owed to the consortium led by Maybank and RHB Bank Bhd which was first due on November 30, 2014. The loan was settled in time to prevent the banks from declaring a default.

Arul did not explain how it raised the money in his February 13 statement, but in an interview with Mingguan Malaysia? two days later, he said reports that AK lent the money were pure speculation.

“Ananda has never said anything about this matter. This is speculation by third parties,” Mingguan Malaysia quoted him as saying.

“I don’t know how he (Arul) can claim that (AK did not help),” says a source.

“It was a simple, clean loan (with no conditions) as AK did not want to be seen as taking advantage (by setting tough conditions).”

In reply to questions by The Edge on why he could not just come out and disclose how 1MDB raised the money, Arul said: “The facts on the (settlement of the) loan will be revealed in the appropriate forum/time i.e. our next set of accounts. To demand any different is to set a different standard for 1MDB which is not only unfair, but also ignoring our right and that of our stakeholders to legal and commercial confidentiality”.

Paying off the RM2 billion debt does not solve the problem for 1MDB, which has total debts of more than RM42 billion and annual debt servicing of RM2.31 billion and a negative cash flow of RM2.25 billion in its financial year ended March 31, 2014.

Sources say that MoF is aware of 1MDB’s cash-flow problem and knows it may have no choice but to step in with a RM3 billion injection.

But in order for that to happen, approval has to be given by the Cabinet, given the large amount of money involved and all the controversy that 1MDB has generated.

The government had on February 11 and 12 raised RM2.1 billion through two treasury bill issues that money market dealers say were unusually large amounts. Sources say the MOF could be getting the money ready should it go ahead and come to the aid of 1MDB.

The cash injection will have to be done before 1MDB’s next financial year close on March 31, 2015 – which is just five weeks away.

?Despite concerns raised by so many parties, MOF officials have always insisted that 1MDB was financially healthy and that the government only had to put in RM1 million as initial capital because the company was strong enough to borrow to fund itself.

Arul, in a February 18 press release on its strategic review, said 1MDB would stop borrowing from now.

Sources say the truth is that 1MDB can no longer go to the market to borrow – whether through bank loans or bond issues.

“The size of its debt of RM42 billion, the massive negative cash flow it has experienced in the last two years plus its struggle to pay the RM2 billion makes it difficult for any bank to lend to them,” says one banker.

“Bond investors will also shy away from any new debt it wants to issue.”

1MDB recently called off a RM8.4 billion Islamic bond that it had planned to raise cash to finance the 3B power project.

Bankers say it was cancelled because of lukewarm response. Sources say bankers have also taken note of the fact that 1MDB has had difficulties proceeding with its plan to float its power assets to raise cash. – February 23, 2015.

[…]

As more seniors rely on reverse mortgages, troubles beckon for heirs

A new government report shows many seniors are taking out reverse mortgages on their homes without fully understanding the ramifications, leading to foreclosures among borrowers and a tangle of problems for heirs after the borrower dies.

“Consumer complaints tell us that the complex terms of reverse mortgages continue to be misunderstood,” said Richard Cordray, director of the Consumer Financial Protection Bureau, which just released a report highlighting the top complaints the agency received about reverse mortgages over the last three years.

A reverse mortgage is a type of loan that allows homeowners age 62 and older to tap a portion of the equity in their homes. The money typically is paid out in a lump sum or in regular fixed payments, with fees and interest added to the balance each month. Unlike a home equity loan, the money does not have to be repaid until the borrower dies, moves out or sells the home.

The loans can be a life line for house-rich, cash-poor seniors struggling with daily living expenses. Reverse mortgages also have been used to help retirees improve their lifestyles, allowing them to buy the summer home they had always dreamed about, for example.

But problems and confusion are expected to continue as more baby boomers retiring with little or no savings turn to the loans for help getting by.

The Consumer Financial Protection Bureau cited a 2010 Federal Reserve report concluding that in the 55-to-64 age group, 41 percent had no retirement savings. Even among those who had a nest egg, the average balance was only $103,200, the report said.

Many complaints that the protection bureau received showed people were confused about the way reverse mortgages work.

“Many consumers struggle with understanding how quickly their loan balance will go up and their home equity will fall,” the report said. As a result, many borrowers who wanted to refinance their loans were frustrated because there wasn’t enough remaining equity in their homes.

One of the most common types of complaints involved the inability of a borrower’s family members to assume the loan in order to keep the house when the borrower died, according to the report.

Reverse mortgages prohibit loan assumptions because actuarial tables are used to help determine the loan amounts. Adult children may keep the home only by paying off the loan or by paying 95 percent of the current appraised value of the house.

Those rules can present problems for multigenerational households when family members are living in the home at the time of the borrower’s death.

Heirs also complained about what they believed were inflated appraisals that required them to pay more than they expected, the report said.

Another common complaint involved the shock of having to sell a home or face foreclosure when a spouse died because the surviving spouse’s name was not on the reverse mortgage. Some couples were advised to take a reverse mortgage in the older spouse’s name to qualify for a bigger loan.

“Some consumers report that their loan originator falsely assured them they would be able to add the other spouse to the loan at a later date,” the report said.

To help more seniors stay in their homes, the U.S. Department of Housing and Urban Development — which insures most reverse mortgages through its Home Equity Conversion Mortgage program — implemented a new rule allowing surviving spouses who meet certain conditions to remain in the home regardless of their borrowing status.

The rule only applies to reverse mortgages originated through HUD’s program after Aug. 4, 2014.

The financial protection bureau also reported a number of complaints from borrowers who faced foreclosure or who lost their homes because they did not keep up with payments for property taxes and homeowners’ insurance, which under terms of a reverse mortgage must be kept current.

“Some consumers describe unsuccessful attempts to halt foreclosure proceedings by paying overdue taxes in full or through payment plans,” the report said.

In an effort to stem such defaults, lenders making loans under HUD’s program after March 2 will be required to make certain financial assessments of a prospective borrower. Currently, loan qualifications primarily are a borrower’s age and the amount of equity in a home.

The financial protection bureau recommends three steps that homeowners with reverse mortgages should take to protect their heirs. The advisory, “Three Steps You Should Take If You Have a Reverse Mortgage,” is available at consumerfinance.gov/blog.

The steps involve verifying who is on the loan, and planning ahead for the non-borrowing spouse and for any family members living in the home.

The advisory also has links to a consumer guide for people considering a reverse mortgage and a question-and-answer tutorial.

Consumers can submit a complaint to the protection bureau at ConsumerFinance.gov, or by calling toll-free 1-855-411-2372.

Patricia Sabatini: psabatini@post-gazette.com or 412-263-3066.

[…]