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Rolex for Casino Cash Fuels Singapore Pawnshop Growth

Yeah Lee Ching recalls when a lady walked into her pawnshop in Singapore and pledged a $10,000 diamond-studded gold Rolex watch to bankroll casino spending. She never came back for her jewelry.

Pawnbrokers are proliferating across Singapore as gamblers seeking short-term loans add to demand for quick cash from people struggling to make ends meet in the world’s most expensive city. The number of pawnshops in the city-state surged to 214 this year from 114 in 2008, according to a report by DMG & Partners Securities Pte. Loans disbursed by the industry jumped to S$5.5 billion ($4.4 billion) in 2013 from S$1.6 billion in 2007, government data show.

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“Pawnshops are the most-frequent automated teller machines for regular gamblers,” Ivan Ho, president of Singapore Pawnbrokers’ Association, said in an interview this month. “They need capital and pawnshops offer them loans that are reasonably priced.”

Since Singapore‘s two casinos opened in 2010, about 20 percent of the increase in pawnbroking activity is driven by clients raising money for gambling, said Ho, who’s also the owner of Heng Seng Pawnshop Co. The rest comes from business owners and low-income individuals who need quick cash to pay hospital bills and other unexpected costs.

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“I pawn my jewelry when the need arises,” said Vikki, a businessman who runs his own security agency and asked to only be identified by his first name. “The biggest loan I got was S$70,000 to cover salaries of my staff when payments from customers got delayed.” He was speaking last week outside the ValueMax Group Ltd. pawnshop in Little India, just across the street from competitor Maxi-Cash (MCFS) Financial Services Corp.

Shares of ValueMax and competitor MoneyMax Financial Services Ltd. (MMFS) were little changed at 9:29 a.m. in Singapore today. Maxi-Cash declined 1.6 percent to 30 Singapore cents while the benchmark Straits Times Index gained 0.2 percent.

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Living Costs

S. Pandian, a 50-year-old construction supervisor from India, was pawning a chain and gold ring at the same ValueMax shop. He said he earns about S$1,600 a month and sends most of it back to his family, making it hard to cover living costs.

ValueMax, Maxi-Cash and MoneyMax Financial Services Ltd. dominate the industry, owning almost 40 percent of all pawnshops in Singapore, according to DMG. Yeah Lee Ching, in whose shop the $10,000 Rolex was pawned, is the executive director of ValueMax.

The three companies raised a combined S$103 million from initial public offerings in the past two years to fund expansion, regulatory filings show. For MoneyMax, which forecasts revenue will climb to S$100 million in two years, it was the opening of the casinos that created a market opportunity.

Soaring Prices

“In Macau, you see casinos and pawnshops,” MoneyMax founder Peter Lim Yong Guan said in an interview on June 12. “That gave us an idea.” While Macau might have been the inspiration, MoneyMax’s Singapore clientele has turned out to be mainly people seeking money for living costs rather than gambling, he said.

The republic topped Paris, Oslo, Zurich and Sydney in the Economist Intelligence Unit’s Worldwide Cost of Living Survey released in March. An influx of foreign workers has contributed to competition for jobs, congested public transportation and surging home prices. The gap between the richest and the poorest Singaporeans rose in 2012 to the widest since 2007, before narrowing last year, according to government data.

The pawnbroking industry also got a boost as surging gold prices increased the amount of collateral borrowers could access, said Yeah, executive director of ValueMax, the biggest such broker by market value in Singapore. Spot gold climbed to a record $1,921.17 an ounce in 2011 before tumbling 28 percent last year.

Get Lucky

Whatever the reason clients need cash, it’s not a pawnbroker’s job to ask. “Sometimes, we hear the customers saying maybe we’ll get lucky this time,” said Henry Kiew, who works at the ValueMax outlet in Little India, a 15-minute drive from the Marina Bay Sands casino. “Then we know they’ll go to try and win back losses.”

Shadow lenders, also known as “matao,” extend loans to gamblers backed by valuables, according to Ho of the pawnbrokers’ association. The client gets 50 percent to 60 percent of the value of their jewelry, lower than the 80 percent to 90 percent rate offered at pawnshops.

If the customer doesn’t pay in three days, the matao takes the valuables to pawnshops and passes on the pawn ticket to the original borrower, Ho said. The pledge can be redeemed by anyone who produces the ticket, said Ho, adding that pawnshops do not know mataos or their representatives.

Spokesmen for Marina Bay Sands and Genting Singapore Plc (GENS)‘s Resorts World Sentosa declined to comment for the story.

Revenue Growth

The combined revenue of Maxi-Cash, MoneyMax and ValueMax will increase 8.7 percent to S$577.7 million in 2014 from a year earlier, according to DMG. MoneyMax will add four outlets to bring its total to 40 by the end of the year, said Chief Financial Officer Choi Swee Weng.

Singapore identified pawnbroking as an industry where controls can be improved to curb money-laundering and terrorism financing risks, according to the country’s national risk assessment report in January. As transactions in the industry are mainly cash-based, risks are posed by pawners repaying debt using illicit funds and pawning illegally-obtained items and leaving them unredeemed, the report said.

Combined gaming revenue of the city’s two casinos will rise to $6.5 billion this year from about $6.3 billion in 2013, according to CLSA Asia-Pacific Markets. There were 15.6 million overseas visitors to Singapore in 2013, compared with 11.6 million in 2010, when the gaming venues first opened, according to data from the tourism board.

“The performance of the casino resorts will be one of the key drivers empowering the pawnbroking industry moving forward,” DMG analysts Jarick Seet and Terence Wong wrote in their May 30 report.

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net

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Monetise your home for retirement cash

Shelve sentiment and check out whether reverse mortgage or selling your home will lift your lifestyle

Senior citizens who have not saved enough for their retirement and don’t have regular cash inflows could face a financial squeeze in their golden years. But of help can be the house you own and live in. You can sell it, buy a cheaper house in a distant place and invest the balance for regular cash flows.

But if you are averse to shifting out of the area you live in, or are not comfortable moving into a smaller house, you have two options. You can take a reverse mortgage loan on the house, or sell it and move into a rented accommodation in the same vicinity. Both choices have their pros and cons.

Reverse Mortgage

With a reverse mortgage loan, you get regular income even while living in the same house. Factors such as the value of the property , the loan-to-value ratio, and your age determine the loan amount. Based on this, you get monthly cash inflows. The bank recovers the loan (from sale of the house) along with interest after you and your spouse pass away or move out. The excess, if any, is returned to legal heirs. Your legal heirs can choose to pay the loan dues and get back the property. It is better to opt for the reverse mortgage loan-enabled annuity scheme than the normal reverse mortgage loan scheme.

The annuity scheme, run by banks in tie-ups with insurance companies, can fetch you higher monthly inflows. Say you are aged 60 and take a reverse mortgage loan of ?30 lakh (at 60 per cent loan-to-value on a house valued at ?50 lakh).

The monthly payment under the annuity scheme, for example, can be up to ?19,500 per month (Star Union Dai-ichi Life Insurance-Central Bank of India). In contrast, the normal reverse mortgage loans offered by banks will get you less than ?3,000 a month.

Besides, annuity schemes give you cash flows as long as you live, unlike the 20-year cap in normal reverse mortgages.

Also, since October last year, payments from the annuity schemes are exempt from tax. Your house will be periodically revalued; this could make you eligible for higher monthly inflows. But reverse mortgage has its drawbacks.

You cannot bequeath the house. The loan dues could add up to a significant sum, especially in the annuity scheme; your legal heirs may not be able to pay this. You will have to bear ongoing expenditure such as insurance charges, taxes, maintenance and statutory payments toward the house.

Besides, there are restrictions regarding the use and maintenance of the house. You cannot rent it out. The loan can be foreclosed and the monthly payments stopped under situations such as bankruptcy, and non-payment of taxes and other dues. A similar provision restricts you from adding a new owner to the title. Finally, with rising prices, there is a risk that the monthly inflows may fall short of your requirement in the future.

Sell and rent

Selling the house and renting a similar accommodation in the same locality can also be worthwhile. The proceeds from the sale can be parked in safe debt instruments and the interest income used to pay the rent. Consider the above example where the house is valued at ?50 lakh. On sale of the house, you may have to pay capital gains tax. If your net realisation is ?45 lakh and you park this in fixed deposits, interest income after tax could be nearly ?4 lakh a year or about ?33,000 per month. Annual rentals are usually around 3-4 per cent of the house value. This means your annual rental outgo could be between ?1.5-2 lakh a year, or between ?12,500-16,500 a month. After paying the rent, you will still be left with ?16,000-21,000 a month for other expenses.

Drawbacks

The problem with the sell-and-rent option is that your rental expense is likely to increase every year unless you are able to enter into longer agreements. Also, interest income from your investments will fall if rates decline.

These factors could force you to dip into the investments to meet rising costs. But this will reduce your regular interest income. So it is imperative to control other costs and keep an adequate buffer for contingencies in future years. There could also be the nuisance of having to shift houses if the landlord asks you to leave. Finally, even in the sell-and-rent option, you can not bequeath the house, though you could bequeath your remaining investments.

The better choice

From a financial point of view, selling and renting makes more sense, since it puts more money in your hands. On the other hand, a reverse mortgage loan will be more convenient operationally ? you get to stay in your own house while monetising it.

(This article was published on May 4, 2014)

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Bank Loan Covenants And Clauses Entrepreneurs Regret Most

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Many entrepreneurs face an uphill battle for sufficient capital to keep a growing business in a position where it’s able to pay its employees, vendors, and landlord on time. Unless the entrepreneur has a stockpile of cash to dip into when the business experiences a cash flow hiccup, reliance on short-term financing from a bank is his first line of defense. Accordingly, many entrepreneurs establish a line of credit with their bank, in addition to permanent financing such as a commercial mortgage, and term loans for equipment and other fixed assets.

According to the National Federation of Independent Business (NFIB) Research Foundation, in recent years approximately 45% of Small Business Owners (SBO’s) have access to and use a line of credit to address the cash flow fluctuations in their business. On the surface, this would appear to be a favorable statistic. However, the NFIB also found 30% of the SBO’s reported during the annual line of credit renewal process “the terms and/or conditions of the firm’s principal credit line have been unilaterally changed by the financial institution.”

Unfortunately, when a lending officer from a bank presents the line of credit or loan documents to an entrepreneur for his or her signature, most entrepreneurs sign them and move on. In fact, the typical entrepreneur is both relieved and delighted to have access to the cash made available by the bank and doesn’t give a second thought to what may go wrong.

Bank Financing Documents Protect the Bank, Not the Entrepreneur

Banks lend money to entrepreneurs based on three factors: Cash flow, Collateral, and Credit Score. The ‘boiler plate language’ in the bank financing documents is intended to ensure the entrepreneur will maintain the business’s cash flow during the term of the agreements and to protect the bank’s collateral in case the entrepreneur fails to make required and timely payments, or is unable to pay off the line of credit and/or loan. This is accomplished in two ways. First through covenants, which are promises the entrepreneur makes to the bank; and second through clauses, which address what will happen when things don’t go as planned. In my experience, the following five bank loan covenants and clauses are those which entrepreneurs regret agreeing to the most:

Second Mortgage on Home to Provide Business Loan Collateral

Many service businesses have little-to-no fixed assets to serve as collateral and accordingly, many entrepreneurs are forced to use their personal residence as collateral. In fact, if the loan is backed by the Small Business Administration under the 7(a) program, securing the line of credit requires a personal guarantee of any equity owner with 20 percent or more ownership in the business when other assets are insufficient to fully collateralize the loan. In many cases, this means the SBA loan is ultimately secured by the equity in the entrepreneur’s personal residence.

Personal Guarantees From Husband and Wife, Joint and Several

Similar to the need to use a second (or third) mortgage on the entrepreneur’s home for collateral purposes, this covenant is used to meet the bank’s collateral and cash flow requirements. When the business does not have sufficient cash flow to support a line of credit or loan, the spouses’ discretionary personal income may be used to hold up or augment the business’s cash flow deficiency. In many cases, this covenant is required by the bank even when the second spouse does not own or work in the business. Often this covenant becomes a big problem when a divorce is pending because banks don’t like to release this covenant unless the line of credit or loan is paid in full.

Debt Service Coverage Ratio Bank Loan Covenant

To satisfy the bank’s level of risk, the bank will set forth a cash flow requirement such as a ratio of income to debt payments which must be maintained by the business throughout the term of the line of credit or loan.

For example, the bank may set a debt service coverage ratio of 1.2 which means that the net operating income for a period must exceed the total debt payments (interest and principle) payable to the bank during the same period by 20%. If the total debt payments for the period were $100,000.00, then the business would need to have income equal to $120,000.00 during the same period in order to maintain the bank’s debt service coverage ratio covenant. In many cases, the entrepreneur agrees to this covenant and does not understand its meaning or implications should the business have a year with reduced net profit or a loss.

Bank Line of Credit Borrowing Base Terms and Compliance

It’s not uncommon to have a line of credit which requires a monthly certification process in order to draw upon the line of credit or alternatively pay back the line of credit principle to the bank. This process is established by the bank to ensure the entrepreneur is not exceeding the level of risk the bank desires to assume.

For example, the bank may set forth a borrowing base formula that states the entrepreneur may borrow up to 80% of the business’s Accounts Receivable which is considered to be ‘current’. The borrowing base calculation is required by the bank to be certified by an officer of the company and delivered monthly to the bank.

Close monitoring of the Accounts Receivable in terms of its aging is necessary. Otherwise, the entrepreneur may find himself with ineligible Accounts Receivable accounts to borrow against or alternatively needing to pay down the line of credit to meet the borrowing base defined limit without the cash to do so.

Move up http://i.forbesimg.com tMove down Small Business Lending: One Size Does Not Fit All Ty Kiisel Contributor The SBA Changes The Rules And Possibly Encourages Job Creation Ty Kiisel Contributor Your Business Can Get A Loan Now — Maybe Bill Conerly Contributor […]

The Real Blog: Why the government acted on payday loans

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I listened over breakfast to

strange interview

with George Osborne, the Chancellor of the Exchequer, with an incredulous Evan Davies about payday loan companies.

Davies was incredulous because an ostensibly free market Chancellor has prejudged his own process to decide to cap the charges and interest rates Wonga and their like can charge.

Osborne replied, quite correctly, that free trade means regulated markets – as indeed it does. He replied that other countries cap the interest rates of their high cost lenders, notably in the USA.

In fact, most US states employ real-time database, like the one provided by the US company Veritec, to provide the platform for payday lenders.

Then it is simply impossible to take out two payday loans at the same time from different companies, and it is impossible for the loan companies to ‘interpret’ rollovers in any lax way they can think of.

It is also quite possible for them to make a profit, as they do in New York, where the loan rate is capped at 25 per cent (plus charges). A bit different from the 5,000 per cent plus APR that some companies extract in the UK.

So why the shift now? I’m always surprised how little the BBC political forces know about what is going on behind the scenes at Westminster if it doesn’t involve the Commons front benches.

My guess is that this apparent volte face began with pressure from the Lib Dem Treasury team in the House of Lords – the team which also cajolled the banks into revealing the geographical spread of their lending down to postcode district level (which will be published in January).

Baroness Kramer is now in government as an effective transport minister, and her place has been taken by Lord Razzall. But her colleague Lord Sharkey has been keeping up pressure on ministers to cap payday loan rates, and the Lib Dem trade minister Jo Swinson – whose responsibility this falls under – has evidently been effective too.

The efforts of Archbishop Justin Welby and campaigners like the Community Investment Coalition have also made an important impact, but there were political reasons too.

The immediate one is that Sharkey had put down an amendment to the Financial Services Bill, due for debate as soon as Wednesday, and that would have capped payday loans – and the last thing ministers would have wanted was for this to be lost, only to have an equivalent Labour amendment passed.

The implication is that, although Osborne got the heat this morning, this is an unheralded Lib Dem success. Quite what the total cap will be set at remains to be seen, but the principle is absolutely vital – capping the amount of money that is being leeched out of the poorest communities.

[…]

Loan shark who stashed “arsenal of weapons” jailed for illegal money lending

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A dangeorus loan shark who stashed an “arsenal of weapons” in his leafy detached home was today behind bars for illegal money lending.

Former head doorman John Radford exploited the vulnerable by lending out hundreds of thousands of pounds at high interest rates – locking his victims into a spiral of debt.

The 56-year-old Liverpool businessman was jailed for eight years in December last year for gun offences when officers from the national loan shark squad swooped on his multi-bed home in Great Sankey, Warrington.

Detectives uncovered a pistol loaded with five bullets in a kitchen cupboard and two bags of ammunition in a locked letterbox.

Gun found in loan shark John Radford’s house

One of the cash bags contained full metal jacket bullets exactly matching the semi-automatic handgun’s configuration.

They also found a haul of other weapons including machetes, knuckle dusters and red pepper spray.

Five cars, including a Mercedes and Rolls Royce, were seen in the drive and a garage and the house had CCTV cameras in every room, a jury was told.

There was also a hot tub, a four-poster bed, numerous flatscreen televisions and three bathrooms, with wads of cash totalling more than £17,000 and ledger notes spread across the property.

Wads of cash in loan shark John Radford’s home in Sankey

Radford was yesterday jailed for another 30 months for illegal money lending.

Simon Mortimer, prosecuting, told Chester Crown Court that Radford had previously worked as a legal money lender but allowed his licence to lapse.

He told how Radford, of Park Road, Sankey, continued to “unscrupulously generate significant wealth” at the expense of vulnerable people, who had no choice but to seek funds from him.

Radford’s clients had “no prospect” of ever concluding their dependency on him.

Also jailed at Chester for illegal money lending between October 2010 and March 2012 were Radford’s sidekicks Paul Holman, 35, of Redpoll Grove in Halewood and Sindy Hope, 50, of Castle Rise in Runcorn.

Both were sentenced to 10 months in prison.

The three people operated predominantly in Liverpool and Halton and upon their arrest in March 2012 were due an estimated return in excess of £420,000.

A search of their home uncovered vast amounts of documentation relating to the illegal money lending business.

Over one six-week period, they had approximately 130 customers who owed them almost £100,000.

Sentencing, Judge Ian Trigger said: “Radford was as a slippery as an eel. He took every opportunity to deflect the blame onto someone else and deliberately attempted to avoid any scrutiny or detection.

“Radford was the centre of the operation, he employed Holman and Hope to do the dirty work and go collecting on his behalf. Even though they would earn 8-10% of the money collected. In the four years between 2007 and 2011, Radford lent put £310,000 and was due to receive double back- this was a very profitable business.

“He charged £10 a day in repayment fees, and even if they weren’t enforced, they were there to cause customers anxiety. These type of offences require a custodial sentence as a deterrent.”

Radford has been remanded in custody since his arrest and was sentenced for the firearms offences in December.

Sindy Hope

John Radford profited greatly at the expense of others through the illegal business – threatening borrowers with “a hiding” if they failed to meet repayments.

One victim who took out a loan for £1000 was forced to pay back £60 every week for a year, meaning they paid back more than three times what they had borrowed.

As they began to struggle with repayments, they were forced to take out further loans from Radford, Holman and Hope to repay the first.

As the debt spiralled, they were told they owed more than £13,000.

Radford lived in a large detached property and had 17 other properties which he rented out, owned a total of nine vehicles and had more than £775,000 across five bank accounts – despite declaring less than £250,000 as his income.

Interest was varied with people often paying back at least double what they had borrowed.

And although some borrowers signed an agreement, these weren’t legally enforceable and they were never given any paperwork to keep track of the loan themselves.

In some cases interest was never even discussed. Late payment fees were sometimes added at £10 a day.

Radford, Holman and Hope were known to threaten borrowers telling them they were due “a hiding” or that they would take their home or send bailiffs.

Paul Holman

The chairman of the National Trading Standards Board, Lord Toby Harris said: “Loan sharks target the most vulnerable in society and often trap them for years – even decades – with crippling repayments, destroying lives of individuals and their families.

“Trading standards are working extremely hard to tackle these despicable criminals –the specialist Illegal Money Lending Team, funded by the National Trading Standards Board, is making a real difference in communities all over the country. The team provides a safe haven enabling victims to come forward and works together with local authority trading standards services, and other partners, to bring loan sharks to justice

“We would urge anyone in the grips of a loan shark to call 0300 555 2222 in confidence to report the criminal and to get help.”

DI Dave Blood, from Cheshire Police’s Financial Investigation Unit, said: “Through the close working relationship between Cheshire Police, the Illegal Money Lending Team and other agencies – a dangerous criminal, who preyed on the vulnerable people of Cheshire, profiting from fear and bringing misery to local communities, has been brought to justice.

“It is clear that Radford profited greatly at the expense of others through this illegal business.”

Tony Quigley Head of the England Illegal Money Lending Team said “This case exemplifies how we are cracking down on loan sharks, who exploit and extort the vulnerable for their own personal gain. These criminals are not untouchable, and can be stopped.

“Loan sharks who threaten borrowers, and use intimidation and fear to force people into repaying everything they have, will not be tolerated. This was a large scale criminal enterprise which left people across the North West living in fear and with little or nothing to get by on, all because of the greed of these three individuals.

“If you have been the victim of a loan shark, we can put an end to their criminal activity. Please call 0300 555 2222. Lines are open 24/7 and all calls are treated in the strictest confidence”

[…]

Payday lenders' access to bank accounts should be restricted, says …

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Lord Freud, who told a fringe meeting at the Conservative party’s annual conference that he has grown increasingly concerned by the way in which high-interest lenders use continuous payment authorities o access borrowers’ accounts. Photograph: Peter Macdiarmid/Getty Images

Payday lenders should be prevented from draining money direct from the bank accounts of benefit claimants until vital household bills have been paid, the minister for welfare reform has said.

Lord Freud told a fringe meeting at the Conservative party’s annual conference that he had grown increasingly concerned by the way in which high interest lenders used continuous payment authorities (CPAs) to access borrowers’ accounts.

As a result, the Tory peer has asked civil servants to come up with ways of restricting lenders’ access to accounts of benefit claimants until utility bills and rent have been accounted for.

His intervention is the first acknowledgement by a minister of a major problem with CPAs implemented by payday lenders. But it was described by Stella Creasy, the campaigning Labour MP for Walthamstow, as an inadequate response.

Under CPAs money is often taken from bank accounts without permission or warning and sometimes even after loans have been paid off, according to evidence gathered by the charity Citizens Advice.

Many lenders make use of them if borrowers are late with payments. Campaigners have argued that such actions are unscrupulous and leave vulnerable people unable to pay for food, rent or other basic necessities.

Addressing a Salvation Army fringe meeting, Freud said the need to curb payday lenders had become more urgent because of the impending rollout of universal credit.

“You sign one of these CPAs and the payday lender dries your account the next day; the next day you are late, you pay the penalty, you can be overcharged, whatever.

“You can see your bank account raided and that clearly that is completely antithetical to what we are trying to do with universal credit. We are trying to create a safe bank account system so [claimants] can have a direct debit and pay their rent and their utility bills.

“This has got a lot of my attention … that is something we cannot allow to go on happening,” he said.

Asked by the Guardian to clarify his options to stop the use of CPAs, he said: “We are looking at a reasonably wide range of options. Our determination is that we don’t have a situation in which universal credit recipients can see their money taken away just before they pay key bills. The options we are looking at are ways of preventing that,” he said.

Creasy said that minister’s intervention was a welcome acknowledgement by the government that there was a problem but said she was concerned that he would fail to address the central issue of debt and high interest exploitation.

“While we should welcome that a minister is admitting that legal loan sharks are a problem, he needs to bring in proper regulation,” she said. “If he really wants to stop this enormous problem then he should set a total costs cap rather than come to a gentlemen’s agreement. This is also an admission by the government they cannot get people to go to credit unions.”

Last month, Citizens Advice said one in three complaints it received about payday loans were about the use of CPAs. The charity has seen evidence of money being taken without permission or warning, and sometimes after loans had been paid off.

Critics have pointed out that Wonga, the payday lender which has charged up to 4,215% APR on its loans, is a major Tory donor.

[…]

Welfare cuts: rich pickings ahead for the loan sharks

Will the abolition of the Social Fund, the source of emergency crisis support for most vulnerable families, push more people into the arms of loan sharks?

The short answer is, we don’t know yet for sure, though comprehensive new research from The Children’s Society suggests key elements are in place to ensure this is precisely what will happen.

As I’ve reported before, the replacement of the social fund with 150 local authority-led “local welfare asssistance” schemes in April marks a huge shift in emphasis from entitlement to cash welfare (in the form of crisis loans and grants) to discretionary “in-kind” support, in the form of food stamps, food bank referrals and charity clothes and furniture.

There were two elements to the social fund: crisis loans, which were typically small £50 loans repayable against future benefit payments; and the community grant, which offered emergency grants of around £1,000 to vulnerable people to buy beds, cookers and other essentials.

These cash-based supports have now largely disappeared under local welfare. The Children’s Society survey found that 62% of English councils were no longer providing interest free cash loans. In addition, two-thirds state that no cash assistance is available, and 15% say cash help (in the form of grants) will only be offered in exceptional circumstances.

A huge irony, given the Government’s professed desire to target social security support on “hard working families” is that in many cases low income households, who may have previously accessed crisis loans (perhaps because of delays in being paid by their employer) will be now unable to access support.

According to the Children’s Society, 25% of local authority welfare schemes now exclude families where an adult is in work. The society’s policy advisor, Dr Sam Royston, explained:

Working families are really pummelled by this. And they are the ones most likely to be going to high interest lenders

But its not just the working poor. Here’s an example of a typical crisis loan applicant, provided in a 2011 report by the Department of Work and Pensions:

Mr G is a 43 year old married Jobseeker, and he has an 18 month old son. He applied for a crisis loan of £50 to help him buy food and pay for fuel for 4 days. He had received his usual fortnightly Jobseeker’s Allowance but 4 days before his next payment of benefit was due his son had become unwell suddenly and had to go into hospital. Mr G lives in a semi-rural area with no car and as there was no public transport, and the hospital was unwilling to provide hospital transport, Mr G had to pay for a taxi to and from the hospital. This spent the final £50 of his benefit, which the family would normally expect to have lasted them for food until the next benefit payday.

Under most new local welfare schemes, Mr G – who you might agree appears to have a very sound case for emergency social security support – will be now most likely reliant on charity. He may recieve a referral to a food bank, or food voucher, in lieu of his families nutritional needs. But in the absence of cash, there appears to be no facility to help him put petrol in the car to get him to the hospital. This again, perhaps, is where the loan shark steps in.

Here’s another example, this time a real life one, which I wrote about last month. A homeless 62-year old woman, Dawn Martin, was refused help to find housing by Isle of Wight council. It passed her on to the local welfare assistance scheme. Although what she needed was a cash loan to put down as a deposit on a room, the council was unable to help. Instead it offered her a voucher with which she could buy:

A tent

The council subsequently relented after a local media outcry, and Martin now has somewhere to live. But the absurdity of offering a tent is enshrined in the policy, and again, the likelihood of vulnerable recipients becoming reliant on high cost credit lenders increases.

This example demonstrates a profound problem with cashless welfare: it is hugely inflexible. It makes it very difficult to meet the actual needs of those who require it, and it can be hugely stigmatising.

The Children’s Society notes:

It is a concern that in many cases a system of cash loans for households in need have become hand-outs of food or second hand furniture. Whilst in some circumstances such “in-kind” support may be very helpful, this fundamentally changes the nature of the support offered, taking it from a means of accessing interest free loans and community grants, to something closer to charitable hand-outs.

The Children’s Society reports that the majority of authorities will still offer support for rent in advance, but many won’t. This creates a postcode lottery. But even if your council does provide rent advances you may not qualify, even if you are in poverty and acute crisis, if the council considers that you can borrow the money from family, friends or get a grant from a local hardship charity.

It is easy to blame councils for the absurdities of the system. To be fair to them, they had very little time to draw up local welfare schemes and received only a fraction of the money previously available for crisis help. The Children’s Society points out that funding for emergency support has reduced by 46% since 2010. Local welfare is, we must remind ourselves, a Coalition vision.

Ministers appears to think the local welfare schemes are working well, three months in. The work and pensions minister Lord Freud recently declared that the schemes had “landed well,” though he did not elucidate on what he meant by this, or the evidence for this assertion.

The society has drawn up a list of recomendations to improve the system. As it stands, the risk is that local welfare may increase debt, hardship, and relaince on loan sharks. The timing could not be worse. As Matthew Reed, the society’s chief executive, says:

Families are at risk of becoming the casualties of government changes to the social fund. These could blight the lives of the most vulnerable and come at a time when other major reforms to the welfare system risk making families more reliant on emergency support.

• The Children’s Society has produced an interactive map of England to enable you to find out what crisis welfare provision is provided in your area. You can see it here.

[…]

Payday loans industry is 'still determined to play down problems'

Like Share… Email page Print page To email address: (required)Your name: (required)Your email address: (required)SendCancel Close Payday loans industry is ‘still determined to play down problems’1 July 2013Citizens Advice is warning payday lenders that they must face up to problems in the industry or expect continuing scrutiny and tough new rules.
Speaking after today’s summit to look at problems with the industry, Citizens Advice Chief Executive Gillian Guy said:
“It is good that extra attention has been given to the problems in the payday loans industry today but I was disappointed that payday lenders are still determined to play down problems. It’s impossible to deny that people have been seriously affected by the irresponsible practices of this industry.
“The fact that people are coming to Citizens Advice for help because they have been given loans they can’t afford to repay and are hounded by texts and phone calls as lenders try to claw back debts shows this is a problem which urgently needs to be tackled.
“Lord Freud was right to raise concerns about the impact that the use of Continuous Payment Authorities could have on Universal Credit. We are already seeing people plunged into serious financial trouble because their bank balance is drained without any warning and it will only get worse as people adapt to a new benefit system.
“The Financial Conduct Authority will have strong, new powers to tackle wrongdoing by payday lenders, and I am particularly keen to see new action on advertising. Payday lenders need to be clear about who they are targeting. We see daytime television adverts with glamorous celebrity endorsements targeted at the unemployed and those on low incomes.”
Citizens Advice

Notes to editors

  1. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more information in England and Wales see www.citizensadvice.org.uk
  2. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality. For online advice and information see www.adviceguide.org.uk
  3. Citizens Advice Bureaux in England and Wales advised 2.1 million clients on 6.9 million problems from April 2011 to March 2012. For full 2011/2012 service statistics see our quarterly publication Advice trends
  4. Out of 22 national charities, the Citizens Advice service is ranked by the general public as being the most helpful, approachable, professional, informative, effective / cost effective, reputable and accountable (nfpSynergy’s Brand Attributes survey, May 2010).
  5. Most Citizens Advice service staff are trained volunteers, working at around 3,500 service outlets across England and Wales.

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Government and regulators quiz payday industry at summit – Press …

Today government Ministers and regulators will meet with payday lenders and consumer groups to discuss concerns about payday lending.

Consumer Minister Jo Swinson will chair a panel with:

Economic Secretary to the Treasury Sajid Javid Minister for Welfare Reform Lord Freud Office of Fair Trading Chief Executive Clive Maxwell and Financial Conduct Authority Chief Executive Martin Wheatley.

The summit will also be attended by interested parties including chief executives of the payday lending trade associations, heads of a number of major payday lenders, heads of consumer group organisations including Which? Citizens Advice and Stepchange, and heads from the Advertising Standards Authority, Financial Ombudsman Service and Money Advice Service.

Government will make clear at the summit that there remain serious concerns about payday lending, that these loans are not right for a majority of people and that they result in many people not getting a fair deal.

The summit will consider what measures the FCA could introduce to reduce consumer harm in the industry when they become the regulator in 2014. Key areas of payday lending, including advertising, rollovers and affordability checks will also be up for discussion.

Ministers and regulators will set out where we go next to address these concerns and will also make clear that we expect the industry to tackle criticisms and do more to protect consumers.

Consumer Minister Jo Swinson said:

Evidence of significant widespread problems in the payday market is concerning. Earlier this year we and the regulators announced a strong action plan with immediate and longer term measures. Today we will be taking stock of progress and looking at what we do next to better protect consumers and address these problems.

I have long had specific concerns about the advertising of payday loans and my department has commissioned research to look into the effect of payday lending advertising on consumer behaviour. My department will be publishing the research in the autumn.

The Office of Fair Trading will update the summit on the tough enforcement action they have been taking including the referral to the Competition Commission which highlights the widespread nature and seriousness of these problems. Also the Financial Conduct Authority will give a flavour of what their rulebook might contain and how they might regulate the market from 2014.

But the industry needs to do so much more to get its house in order, particularly in terms of protecting vulnerable consumers in financial difficulty. I am concerned that the lenders are not living to the spirit or the letter of the codes of practice that they signed up to last year. This is why I will be launching at the summit a survey to review the effectiveness of the industry codes and customer charter. I expect to hear more on what they are doing to make sure consumers aren’t taking out loans that aren’t right for them.

Economic Secretary to the Treasury, Sajid Javid:

From 1 April next year consumer credit will be overseen by the Financial Conduct Authority. This marks a step-change to how the whole market, and payday lenders in particular, are regulated.

The FCA’s role will be to ensure that consumers are fairly treated and are able to reap the benefits of a competitive market.

Today’s summit will be invaluable in helping to shape the FCA’s thinking on future rules and interventions on payday lending that it might implement next April.

Lord Freud, Minister for Welfare Reform, said:

The unscrupulous practices of some payday lenders can place vulnerable people at risk.

I am concerned about some companies using Continuous Payment Authority (CPA) to access borrowers’ bank accounts inappropriately and excessively. I am determined that payday lenders should not be able to misuse this system to recoup funds from vital benefit payments that should be used for essential spending, such as utility bills and rent.

We are working hard to end financial exclusion, which is often the reason people turn to payday lenders. We are investing £38m in credit unions to provide a good value alternative to help people save and access loans if they need them.

I hope this summit will address some of the problems with the industry, so lenders can meet their obligations to their customers.

Notes to Editors

1.The summit will be held at BIS Conference Centre in London.

2.On 6 March, government and regulators announced a series of actions to tackle poor compliance in the payday lending industry:

The OFT now, and the FCA from April 2014, are clamping down on irresponsible practices and in some cases blatant non-compliance by lenders. They have suspended licences of two payday lenders so far. The OFT have put 50 lenders on notice, demanding they fix the problems within 12 weeks or face consequences. Twenty responses to these letters have been received to date. Five of these twenty lenders have left the payday lending market. The OFT have announced that they will refer the payday lending market to the Competition Commission. Government is working with the OFT, the Advertising Standards Agency and industry to look at advertising and tougher codes of practice as soon as possible. The ASA have recently banned two payday adverts for misleading consumers. The FCA will have strong new powers to restrict the form and content of advertising, and has committed to use these powers promptly when it takes charge next year. The government last week laid secondary legislation which will underpin the FCA’s regulatory powers on consumer credit before Parliament. The FCA has committed to consider whether there are gaps in the regulation of payday lending that need to be addressed by the FCA from April 2014.

3.The government’s economic policy objective is to achieve ‘strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. It set four ambitions in the ‘Plan for Growth’, published at Budget 2011:

to create the most competitive tax system in the G20 to make the UK the best place in Europe to start, finance and grow a business to encourage investment and exports as a route to a more balanced economy to create a more educated workforce that is the most flexible in Europe.

Work is underway across government to achieve these ambitions, including progress on more than 250 measures as part of the Growth Review. Developing an Industrial Strategy gives new impetus to this work by providing businesses, investors and the public with more clarity about the long-term direction in which the government wants the economy to travel.

[…]

Fisker Automotive's "On Time" 1st $21M Payment on $192M D.O.E. Loan Used Loophole in Loan Agreement, Tapped …

NEW YORK, NY–(Marketwired – Apr 23, 2013) – Fisker “missed” its first interest payment to the Department of Energy – the company did not have sufficient cash left in its bank account to make the $20.2 million loan payment (determined by PrivCo through calculations based on the loan drawdown schedule and analysis of loan documentation) by April 22nd, 2013 at 1pm ET. However, as a precise legal matter, Fisker’s payment was in fact on time, and there was no payment default through the following “loophole” consented to by the DOE in order to avoid a formal and public payment default, just 2 days before a Congressional House Oversight Committee Hearing scheduled for April 24 at 2pm ET. The hearing will call into question the DOE’s “Bad Bet on Fisker” and potentially negligent underwriting of the $528.7M credit facility, ultimately raising the question of whether the DOE ignored multiple events of default or issued written amendments and waivers to the original loan agreements while failing to inform the public.

PrivCo Analysis:

http://www.privco.com/fisker-allowed-by-the-us-dept-of-energy-to-withdraw-202-million-from-restriced-cash-loan-reserve-account

Monday’s delay of an inevitable formal declaration of default and very likely politicized Fisker bankruptcy, ignores the truth that $1.1 billion in equity raised by Fisker from prominent venture capital firms, over 1,200 individual investors, and others is likely to be worthless due to the seniority of DOE’s $193M Loan and an additional $12.5 million loan made by the State of Delaware. Regardless of the consequences to recent Fisker equity investors, ongoing vendors to Fisker, and other unsecured creditors, the D.O.E. has delayed foreclosing on its $192 Million loan despite multiple events of default by Fisker. It is clear from PrivCo’s analysis of over 11,000 pages of never before published original documents, the D.O.E.’s actions to date have not been those of a rational lender.

The DOE’s decisions will ultimately:

(1) Significantly reduce the last remaining Collateral of any value protecting the $192M in taxpayer money borrowed by now insolvent Fisker,

(2) Provide Fisker 3 more months before its next scheduled $13.5 million loan payment is due to the D.O.E. on July 22, 2013,

(3) Delay a formal and public Payment Default or foreclosure by the DOE and a Chapter 11 bankruptcy filing two days before a House Oversight Committee Hearing whose witnesses (including the head of the DOE’s Loan Program, resigned Fisker Automotive Founder & CEO Henrik Fisker, and current Fisker Automotive CEO Tony Posawatz) will provide sworn testimony on whether the Fisker loan is “in Default.”

PrivCo CEO and Corporate Lawyer Sam Hamadeh, Esq., stated, “The release of restricted cash collateral with the purpose of assisting the insolvent borrower to technically make its scheduled Loan Payment is highly irregular. Such an action would never be taken by a rational Lender acting in its own financial interest. It would be akin to a landlord allowing their tenant to use a security deposit to pay rent they do not have the money for.”

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Topics: Fisker, Automotive, Bankruptcy, D.O.E.

Contact:

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Sam Hamadeh, Esq., J.D., M.B.A.

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