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How The Post Office Could Take On The Payday Loan Industry

With the idea of postal banking becoming more mainstream in the U.S., the head of the largest union of postal workers says he plans to make a revived banking service part of his union’s upcoming contract talks with the U.S. Postal Service.

Mark Dimondstein, president of the American Postal Workers Union (APWU), told The Huffington Post that postal banking — when post offices also offer simple banking services like checking and savings accounts — is “an idea that should be reborn and whose time has come.”

“Basic postal banking is done in many countries around the world, and in many of those countries it’s a revenue-driver for the post office,” Dimondstein said. “We think it’s a win-win-win situation. It’s great for the public. It’s great for the post office. And it’s great for postal workers.”

Dimondstein’s plans to make postal banking part of contract talks were first reported by Salon’s David Dayen.

The U.S. Postal Service once offered simple banking services to the public, but federal reforms abolished the services in 1966. With the postal service now facing a drop in first-class mail and costly mandates from Congress, the notion of restoring banking has been bandied about as a way to get the agency on more solid footing while extending some basic services to underbanked communities.

In particular, it’s been pitched as a potential alternative to the high-interest payday loans that poorer Americans rely on.

Last year, the postal service’s Office of the Inspector General recommended that the agency consider offering check cashing, money transfers and modest loans to customers who don’t have their own banks. The idea has gained currency not only with postal service boosters, but also with critics of Wall Street, including Sen. Elizabeth Warren (D-Mass.).

In an op-ed last year, Warren argued that the postal service is the one organization with “the public mission, the infrastructure, the experience and the well-trained employees needed to help address this problem” of predatory lending aimed at the poor.

One interested party that hasn’t endorsed the concept of postal banking is the postal service itself. Patrick Donahoe, the postmaster general until earlier this month, “scoffed” at the idea during a press conference late last year, according to the Associated Press. “Our role is delivery,” not banking, Donahoe said.

It isn’t apparent yet how receptive Donahoe’s replacement, Megan J. Brennan, might be to reviving postal banking services. Asked whether the agency’s new management would entertain such a discussion, an agency spokeswoman said, “We’ll just have to wait and see what’s addressed during the negotiation process” with the union.

The divide over postal banking is part of a broader philosophical disagreement over the future of the post office. Heading an agency faced with red ink — most of it due to a requirement imposed by Congress that the agency pre-fund retirement benefits years in advance — Donahoe sought more latitude to streamline the postal service, pushing proposals that would eliminate Saturday delivery and close more mail processing facilities.

Postal unions have staunchly opposed such moves and argued that they will lead to the so-called death spiral, in which reduced services inevitably lead to the agency’s demise.

APWU will begin negotiations for a new contract with the postal service next week, and the union expects the agency to seek concessions in employee health and retirement benefits — a common feature in nearly all union contract talks these days. Though it isn’t clear how postal banking could fit into such a contract, Dimondstein said he believes the negotiations will provide a good opportunity to put the proposal before postal management.

“We think it’s most appropriate that the needs of [postal customers] are talked about at the bargaining table,” Dimondstein said. “And I can tell you this: I haven’t met a single person — though I don’t run into Wall Street bankers often — who think this is a bad idea.”

[…]

Tight For Cash? Avoid Payday Loans With These 4 Alternatives

View photo. As the New Year is underway, personal financial security once more comes to the forefront of financial consciousness. Holiday spending often leaves many in uncomfortable positions, especially if nickel-and-dime budgeting is not a personal forte. While adequate planning is ideal, January often rushes in and meets the well-intended with an emaciated pocketbook ledger. It is important in these situations to prudently remember that quick fixes can lead to debt traps that could quicksand tight budgeting practices. Instead of letting anxiety run rampant and potentially ruin volatile financial situations, take time to consider all available options. Related Link: Spend Too Much On Gifts? Here’s How To Recover From A Broken Holiday Budget

1. Avoid Payday Loans

Often advertising too-good-to-be-true promises, payday advance loan companies feed upon the desperate and those in search of a momentary (vs. permanent) fix. Recently, these companies have come under severe scrutiny from the Better Business Bureau , various Centers for Lending Responsibility and federal agencies — calling them out for exorbitant fees and interest rates.

According to the federal agency Consumer Financial Protection Bureau, 62 percent of payday loans, “are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed.” The report continued by stating that more than 80 percent of all loans go unpaid by the next pay-period.

Because of this spiraling trend, 22 states have limited or completely banned payday advance loan practices. Unfortunately, that still leaves the practice fairly accessible to vulnerable individuals. Before considering payday loans, consider looking into other, more reliable and permanent solutions.

2. Credit Union Loans

While most other small loan options will require a credit check, the fees and interest rates are inevitably lower than payday loans. Additionally, because of the checks involved in the practice, promptly repaying federal credit union loans can boost credit scores. Receiving a small line of credit or a STS (Short-Term Small) loan from a credit union is an attractive alternative for decreasing momentary financial right spots.

Each credit union functions differently, but there are federal regulations that all federal credit unions must follow, such as the maximum allowable APR percentage, set caps and a minimum enrollment period with the credit union. These stipulations are in place to protect the credit unions and the individuals looking to borrow. According to the federal credit unions’ government-run website, these practices are in place to provide “consumers with an alternative to borrowing from potentially predatory payday lenders.”

Related Link:3 Reasons Why You Shouldn’t Overlook Checkbook Balancing

3. Unsecured Personal Loans

These small loans are typically available to those with high credit scores and do not use property as collateral. The benefit of these loans is the extended amount of time granted to repay the amount borrows and a fixed payment schedule. The interest for unsecured personal loans is higher than HELOC loans. As with credit union loans, each institution functions uniquely; therefore, looking into more than one bank and comparing terms and interest rates is recommended.

4. Personal Lines Of Credit

While the downfalls of holding credit cards are widely publicized, one attractive benefit of opening a personal line of credit is that the interest rates only apply to the amount borrowed. Unlike personal loans (either through a credit union or bank), borrowing the credit limit is possible without applying for a new loan. In other words, if a line of credit has a $5,000 cap, the borrower can perpetually borrow $5,000 as long as the previously borrowed amount is repaid.Used wisely, personal lines of credit can help individuals get out temporary tight spots.

Whatever method is chosen to ease minor financial discomfort, take the time to explore all options and compare the long-term implications before prematurely digging yourself deeper into unnecessary, near-impossible-to-repay debt. Momentary financial issues do not need to be death sentences for your financial health. Invest in yourself and research all available options before acting impulsively.

See more from Benzinga

3 Tips For A Year-End Tax CheckupSpent Too Much On Gifts? Here’s How To Recover From A Broken Holiday Budget5 Holiday Gift Ideas That Will Help, Not Hinder, Family Budgeting

FinanceLoansPayday LoansUnsecured Personal Loans […]

Tight For Cash? Avoid Payday Loans With These 3 Alternatives

Thumbnail

View photo. As the New Year is underway, personal financial security once more comes to the forefront of financial consciousness. Holiday spending often leaves many in uncomfortable positions, especially if nickel-and-dime budgeting is not a personal forte. While adequate planning is ideal, January often rushes in and meets the well-intended with an emaciated pocketbook ledger. It is important in these situations to prudently remember that quick fixes can lead to debt traps that could quicksand tight budgeting practices. Instead of letting anxiety run rampant and potentially ruin volatile financial situations, take time to consider all available options. Related Link: Spend Too Much On Gifts? Here’s How To Recover From A Broken Holiday Budget

Avoid Payday Loans

Often advertising too-good-to-be-true promises, payday advance loan companies feed upon the desperate and those in search of a momentary (vs. permanent) fix. Recently, these companies have come under severe scrutiny from the Better Business Bureau , various Centers for Lending Responsibility and federal agencies — calling them out for exorbitant fees and interest rates.

According to the federal agency Consumer Financial Protection Bureau, 62 percent of payday loans, “are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed.” The report continued by stating that more than 80 percent of all loans go unpaid by the next pay-period.

Because of this spiraling trend, 22 states have limited or completely banned payday advance loan practices. Unfortunately, that still leaves the practice fairly accessible to vulnerable individuals. Before considering payday loans, consider looking into other, more reliable and permanent solutions.

1. Credit Union Loans

While most other small loan options will require a credit check, the fees and interest rates are inevitably lower than payday loans. Additionally, because of the checks involved in the practice, promptly repaying federal credit union loans can boost credit scores. Receiving a small line of credit or a STS (Short-Term Small) loan from a credit union is an attractive alternative for decreasing momentary financial right spots.

Each credit union functions differently, but there are federal regulations that all federal credit unions must follow, such as the maximum allowable APR percentage, set caps and a minimum enrollment period with the credit union. These stipulations are in place to protect the credit unions and the individuals looking to borrow. According to the federal credit unions’ government-run website, these practices are in place to provide “consumers with an alternative to borrowing from potentially predatory payday lenders.”

Related Link:3 Reasons Why You Shouldn’t Overlook Checkbook Balancing

2. Unsecured Personal Loans

These small loans are typically available to those with high credit scores and do not use property as collateral. The benefit of these loans is the extended amount of time granted to repay the amount borrows and a fixed payment schedule. The interest for unsecured personal loans is higher than HELOC loans. As with credit union loans, each institution functions uniquely; therefore, looking into more than one bank and comparing terms and interest rates is recommended.

3. Personal Lines Of Credit

While the downfalls of holding credit cards are widely publicized, one attractive benefit of opening a personal line of credit is that the interest rates only apply to the amount borrowed. Unlike personal loans (either through a credit union or bank), borrowing the credit limit is possible without applying for a new loan. In other words, if a line of credit has a $5,000 cap, the borrower can perpetually borrow $5,000 as long as the previously borrowed amount is repaid.Used wisely, personal lines of credit can help individuals get out temporary tight spots.

Whatever method is chosen to ease minor financial discomfort, take the time to explore all options and compare the long-term implications before prematurely digging yourself deeper into unnecessary, near-impossible-to-repay debt. Momentary financial issues do not need to be death sentences for your financial health. Invest in yourself and research all available options before acting impulsively.

See more from Benzinga

3 Tips For A Year-End Tax CheckupSpent Too Much On Gifts? Here’s How To Recover From A Broken Holiday Budget5 Holiday Gift Ideas That Will Help, Not Hinder, Family Budgeting

FinanceLoansPayday LoansUnsecured Personal Loans […]

What It's Like To Live Without A Bank Account For A Day

The challenge was simple, or so it seemed: Pay my bills and complete a handful of money-related errands before my work shift began at noon. It was harder than I ever could have imagined.

In reality, I wasn’t handling my own finances; I was participating in a simulation of what it’s like to be one of the underbanked—that is, to be one of the 7.7% of Americans with limited access to traditional banking services. The Financial Solutions Lab, a spin-off of the Center for Financial Services Innovation (CFSI), put on the simulation for a group of entrepreneurs, nonprofit employees, and banking executives so that they could come up with new product ideas for addressing the challenges of cash flow management.

We ended up waiting for nearly half an hour while the store decided it couldn’t cash one of the checks.

During the two-hour simulation, the group was split up into teams and given a series of tasks to complete. These included buying a general purpose re-loadable card (GPR) and loading it up with cash, cashing a payroll check and a personal check, completing a money transfer and then picking up a money transfer card from another team, and paying the balance of a monthly rent bill.

My team—Paul Breloff, managing director of the Accion Venture Lab, Ethan Bloch, the CEO of digit, and myself—walked around San Francisco’s Mission District, popping into the payday loan and cash advance outfits, with names like Ace Cash Express and Money Mart, that I had passed so many times before without even a second glance.

Our first problem came at Ria’s, a storefront where we planned to cash our checks and load up our GPR card. We ended up waiting for nearly half an hour while the store decided it couldn’t cash one of the checks because we couldn’t immediately get verification from the sender that it was legitimate.

Ace Cash was willing to take care of the checks and GPR quickly, but for a significantly higher fee. Still, Ace Cash refused to let us pay the $10 balance from our monthly rent bill. The transaction was “declined for unspecified reasons.”

Western Union presented yet another challenge. Upon arriving at the storefront, we were told that their system was down. Eventually, we were told that the other team instructed to pick up our money transfer could do so at any Western Union—but we were charged a $5 fee for our $30 transaction.

Though we failed to complete our tasks, my team still won the competition. The other teams, apparently, finished even fewer tasks.

Normally, I take care of the vast majority of my financial transactions online. But as the FinX simulation made clear, the options for the underbanked are often limited to opaque in-person transactions that suck up large amounts of time. These transactions are unreliable; one team couldn’t pay their rent check because of a systems failure at a storefront, and Western Union failed us all. Customers have to wait on long lines, and there are few options for self-service.

All of these pain points are fixable, and there are plenty of startups that are working in the underbanked financial services space. None have really taken off yet, but CFSI is hoping that its new Financial Solutions Lab—a $30 million, five year initiative that will offer funding and resources to financial security entrepreneurs—will provide new solutions.

For now, banking without a traditional bank account remains a time-consuming, exhausting experience.

[…]

7 ways to get quick cash besides risky payday loans | Las Vegas …

The holiday shopping season is coming up, and people in search of some quick spending capital might strongly consider taking out a payday loan. Think about it — it’s a quick source of cash without the need for the credit checks and extensive protocols synonymous with personal lending. It sounds too good to be true.

That’s because it is. More than 19 million people struggling with their finances take out one of these unsecured personal loans each year without seeing the danger signs pointing to their finances, like insanely high, triple-digit interest rates. “Unlike other loans, payday loans must be repaid in full on the borrower’s next payday at annual interest rates of around 400 percent,” wrote Melissa Rayworth over at TakePart. Rayworth also noted that up to 97 percent of people will borrow from a payday loan again.

Payday loan borrowers are also exposed to a downward spiral of debt that can last months (if not years), a wrecked credit standing and predatory, aggressive collection practices from debtors who want immediate repayment. “If you take out a payday loan, you’re going to come out the financial loser almost every time,” wrote Trent Hamm of The Simple Dollar. “They almost always cause more problems than they solve.”

Before funding your post-Black Friday Christmas shopping with a payday loan, look at some of these simpler — and reasonably safer — ways to get some money fast.

Avoid Payday Loans with these Quick Cash Alternatives

1. Take out a Payday Alternative Loan.

Yes, these actually exist. Veridian Credit Union, for example, offers a PAL with a maximum loan amount of $1,000 and a six-month repayment term at an interest rate of around 20% (usually regardless of a borrower’s credit score). While not the lowest interest rate, it’s more manageable than the high interest and short repayment terms of a payday loan. Another option is to consult with your bank or credit union about a small personal loan with better security, terms and interest.

2. Get a cash advance from your credit card.

Another similar, yet less expensive option, is to contact your credit card carrier for a modest cash advance. Again, the interest rates might not be the lowest, but this time, you’re borrowing against your own credit limit and not some third-party payday provider. If the cash advance option seems too insurmountable to you, simply use your credit card for your holiday shopping, and avoid using it again until you’ve paid down your balance.

3. Withdraw from your emergency fund.

If the added interest of using your credit card is too much to deal with, you can always try taking just enough cash from your emergency fund to cover holiday shopping expenses. Since you act as your own lender here, this loan is entirely up to you to repay — but financial discipline is important. Let too much time go by, and you might never get around to replenishing what you borrowed, and you might not have enough money if a real emergency arises.

4. Ask your employer for an advance.

Your job might may permit you a cash advance taken from your next paycheck. It’s not a loan, so you won’t have to deal with interest or repayment since it’s money that you have earned. However, keep in mind that if you ask for $200, be prepared for your next paycheck to reflect that difference. It’s also wise not to make a habit of asking for cash advances; taking frequent financial shortcuts could leave a bad impression with your employer. Request some holiday overtime; the extra hours can yield you some extra cash.

5. Sell, pawn or auction off unwanted belongings.

Now’s a better time than ever to sell some of those old things taking up space in your house. It could be anything from a used cell phone, to furniture, vintage clothing, appliances and more, a rich source of quick cash. Go the online route, like eBay, Amazon Marketplace or Craigslist. Visit some local pawn shops or thrift stores and see what kind of offer they’ll make for your items.

6. Reduce your spending.

In the spirit of the holidays, is there anything you can temporarily cut back on — or eliminate entirely — to gain some Christmas cash? Put your gym membership on hold for a month or two, cook at home more than eating out, and save on gas by taking public transportation. Aim to spend less disposable income on clothes and entertainment, since this is the season for buying those things for your friends and family. Some financial experts even suggest adjusting the tax withheld from your paycheck so you’ll have more cash available now versus later.

7. Open a holiday savings account.

This is not a source of “quick” money per se, but if you’re in a cash crunch this holiday, open a savings account designed to save money for holiday shopping. Your bank or credit union of choice might have its own version that can give you higher interest and generous deposit limits. Start now and have plenty of reserve money available by Christmas 2015, enough that finding an alternative source of cash won’t even be necessary.

Use these tips as a start and brainstorm some more ways you might be able to save money during the holidays. Asking a friend or family member to borrow money can be a good option during a financial crunch or crisis, but it’s not always recommended. Even if the money is repaid on time, borrowing from a parent or sibling and then using that money to purchase a gift for them isn’t very considerate. In this case, opt for a more economical gift, or express your creativity by making your own. They’ll appreciate your gesture more than money can ever buy.

[…]

Payday loan charges cap announced

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BBC News – Payday loan charges cap announced by FCA

FCA’s Martin Wheatley: It “may be the case” there will be no High Street payday lenders in a year’s time

“For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections,” he added.

The price cap plan – which includes both interest and fees – remains unchanged from proposals the regulator published in July.

‘Tighter checks’

The confirmed measures will see:

Initial cap of 0.8% a day in interest charges. Someone who takes out a loan of £100 over 30 days, and pays back on time, will therefore pay no more than £24 in interest A cap of £15 on the one-off default fee. Borrowers who fail to pay back on time can be charged a maximum of £15, plus a maximum of 0.8% a day in interest and fees Total cost cap of 100%. If a borrower defaults, the interest on the debt will build up, but he or she will never have to pay back more than twice the amount they borrowed

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, said the payday loans industry had already put in place higher standards of conduct.

“We’ve restricted, for example, extending loans, rolling over loans, [and] we’ve got tighter checks on people before we approve loans,” he told BBC Radio Four’s Today programme.

“This [cap], if you like, is the cherry on a rather heavily-iced cake,” he said.

The £2.8bn industry was expected to shrink as a consequence of the cap, which could make people vulnerable to loan sharks, he added.

“We’ll inevitably see fewer people getting fewer loans from fewer lenders,” Mr Hamblin-Boone said. “The fact is, the demand is not going to go away. What we need to do is make sure we have an alternative, and that we’re catching people, and that they’re not going to illegal lenders.”

Zoe Conway, Reporter, BBC Radio 4 Today: The view from Byker, Newcastle

In the High Street in Byker, there are pawn shops, and brightly coloured Money Shops and Cash Converters. It does not take long to meet someone struggling with debt.

Kevin, behind on a loan from a doorstep lender, says people have very few options. “I’ve actually been approached in the street,” he says. “It was one of those ‘legs broke if you don’t pay’ sort of things.”

There is concern in this community that if it gets harder for people to access payday loans, the loan sharks will take over. That is certainly the view at the Byker Moneywise Credit Union. They offer payday loans at much lower rates but few people locally know about them and, admits manager Christine Callaghan, the Union is not big enough to meet the demand for short-term loans.

At The Big Grill, the owner, John, is making bacon sandwiches. He is worried that people may have to resort to stealing to make ends meet. “They’ll turn to crime to get what they want especially for their kids,” he says.

It is a view shared by resident Alison who thinks the government needs to step in to give people more options and better places to turn to.

Responsible lending

Mr Wheatley, of the FCA, said that the regulator’s research had shown that 70,000 people who were able to secure a payday loan now would not be able to do so under the new, stricter rules. They represent about 7% of current borrowers.

However, he disputed the industry’s view that many of these people would be driven into the arms of illegal loan sharks. He said most would do without getting a loan, some would turn to their families or employers for help, and only 2% would go to loan sharks.

He added that he wanted to see a responsible, mature industry for short-term loans.

Gillian Guy, chief executive of Citizens Advice, said: “People who are in a position to borrow need a responsible short-term credit market. A vital part of this is greater choice. High Street banks should seize the opportunity to meet demand and offer their customers a better alternative to payday loans.

“The FCA should monitor the cap, including whether it is set at the right level, to make sure it is working for consumers. They must also keep a close eye on whether lenders are sticking to the rules.”

Earlier this year, the government legislated to require the FCA to introduce a cap on the cost of payday loans. Chancellor George Osborne said the decision would “make sure some of the absolutely outrageous fees and unacceptable practices are dealt with”.

Meanwhile, Cathy Jamieson, Labour’s shadow financial secretary to the Treasury, said she was glad that action was being taken.

“However, we believe these changes will need to be regularly monitored to ensure they are effective. That is why we want to see a review by the end of 2015 – much earlier than is currently being recommended by the FCA,” she said.

More on This Story

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Farewell payday lenders, welcome loan sharks? 09 OCTOBER 2014, BUSINESS Payday loan hardship cases ‘up 42%’ 02 SEPTEMBER 2014, BUSINESS Thousands refunded for payday loans 14 JULY 2014, BUSINESS Church of England cuts Wonga ties 11 JULY 2014, BUSINESS

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LOUISE FAIRSAVE: Payday loans

Payday loans started off as small, short-term loans to meet unexpected needs for cash between paydays especially when you do not wish to involve relatives or friends.

Gradually, such loans have evolved to be more and more predatory: for larger and larger cash amounts, having longer and longer terms, with higher and higher rates of interest and having less and less to do with payday.

Some generous employers will allow a staff member to have either an advance of a month’s salary or an advance of an amount which is less than the month’s salary as a short-term loan. The period of deduction in repayment from future wages or salary will typically not exceed a month or two. Such a loan will normally be interest free. In special circumstances, some employers will consider extending loans for higher amounts for longer periods too. This type of loan is more in line with the original kind of payday loan.

However, being cash-strapped just before payday is quite common, so some businesses have developed over the years which provide cash advances and loans, typically at high interest rates and for longer periods. These types of loans are easier to negotiate; the loan process can take as little as an hour or two to get the needed cash in hand.

The more desperate you are for cash, the more likely you will ignore the danger signs and turn to a high-cost source of immediate funds. For example, when you need thousands of dollars in cash fast, you may find that an offer of a $12 000 loan for an 18-month period at 2.5 per cent interest per month just meets your needs. Even better may be a $15 000 loan for 12 months at 2.92 per cent interest.

A 2.5 per cent per month interest rate works out to 30 per cent per year and a 2.92 per cent interest rate works out to slightly over 35 per cent per year. Yes, the cash will meet your needs, yet does this loan service really deserve that much more of your earnings? If you are desperate enough to knowingly undertake such high-cost debt, you are likely already riding a perilous cycle of debt.

To undertake such a loan arrangement commits you to repay the sum borrowed plus exorbitant interest. Be warned that to make a late payment instalment or miss the payment completely, you are likely to be bombarded with calls, and text or email messages from the lender. This may include being bothered on the job about repayment.

A bad move to make in those circumstances is to roll over the loan so that it is repayable over a longer period in smaller instalments. That will likely escalate the interest charged and worsen debt problems.

Right from the beginning, it is best to consider other ways of borrowing – either an outright loan from your credit union, bank or other financial institution, or arranging a line of credit or overdraft facility. You should specifically seek debt handling advice when your debt situation seems to be getting out of control.

It is your responsibility to read each offer carefully, scrutinising the details in making a choice of the value to your situation. The advantage of dealing with your credit union is that you have access to a refund of some of the interest charged through the assessment of the patronage refund each year.

Payday loans are meant to be short term for small amounts of money relative to your earning capacity. Larger loan amounts which are needed for longer periods should be more carefully and thoroughly investigated before committing to a repayment agreement.

• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.

[…]

Why are students using payday loans? | The Free Financial Advisor

Image Money-Elizabeth.png

Istockphoto

There appears to be a rising trend that shows that more and more students are taking out short term loans. Research by the National Union of Students (NUS) shows that up to 46,000 undergraduates are using what they term high risk debt (which includes payday loans, cheque cashing and doorstep loans). They suggest a number of reasons for this which relate, in the main, to funding their living costs and fees. .

Some highlights from their research show:

the weekly cost of student accommodation has nearly doubled in 10 years (£60 – £118); 50% of students worry about meeting basic living expenses like rent and utility bills; over third of students receive no family financial support.

These stats show it is not a typical student lifestyle being funded via a payday loan, but the essentials.

So worried are the NUS about the risk of spiralling debt problems in the student , that they are calling on a ban of all payday lenders from advertising in student magazines, student residences and on campuses.

Payday loan giant Wonga took the unprecedented step of not advertising to students last year and removed all pages from their website in 2012 that could have been construed as targeting students. This has not, however, currently stopped other companies trying to.

Students themselves, has also taken a novel approach and launched their own “payday loan” company specifically for the student market. Unlike normal lenders they have a number of interesting features:

no rollovers; a 10 day grace period – in case of student loan problems; a fixed cap of interest – you can never owe more than 50% of what you borrowed; a lower rate of interest.

So even the students themselves see that there is a need for access to short term finance, and they feel they are able to offer a more competitive and student friendly service themselves.

What does the industry say?

The Consumer Finance Association, which represents some of the main payday providers, said students would need to be in regular employment to qualify for a loan from a reputable lender, and that simply banning advertising in campuses would not remove the issue.

The new financial watchdog, the Financial Conduct Authority (FCA), has issued new regulations for payday lenders which came into force in July and include:

restrictions on the number of rollovers (ie.how many times a loan can be extended); wealth warnings on ads; more rigorous testing on affordability.

The aim is to remove the less than reputable loan providers from lending.

Other options for help

Students are being advised to think carefully before logging on and applying for a payday loan. There are a number of alternatives students could look at first.

Some universities have access to learning funds where students can apply for funds if they are struggling to pay for their studies.

Other finance products such as an 0% credit card or 0% student overdraft may help cash strapped students in the short term and means they are not actually having to pay back interest on the borrowing.

Credit Unions are another source of low cost small term finance loans – more information is available here: http://www.findyourcreditunion.co.uk/home.

The Bank of Mum and Dad could be an option before turning to a payday loan for students. Or, those that live close enough can lean on them in other ways to help reduce their living costs. Asking for a loan or moving back home to keep debt down is not a bad idea.

Summary

As you can see there are a number of reasons why students are turning to payday loans and why it is a worrying trend in some people’s eyes. That said, payday finance is not the only option available to students who need a short term injection of cash.

About the author: Emily Green is a freelance personal finance writer living in Hong Kong. She loves travelling and is planning to relocate to New Zealand within the year.

[…]

Portfolio: The risks of floating rate funds

Any yield-focused investor would be pleased with a portfolio that had no volatility, generated an annual return of about 4 percent and promised rising income in the years ahead. But all of the new money flowing into bank-loan funds should be a matter of concern.

Bank-loan funds have been around since the 1980s, when they were created by fund families such as Eaton Vance, Franklin Templeton Investments, and Oppenheimer. They are aimed at investors who wanted better than cash-equivalent returns. Those funds, often called floating-rate funds, hold short-term loans extended by banks to companies. The bank sells the loans to mutual funds and other institutional investors. In turn, the funds will buy and sell the bank loans on the open market.

Until 2009 bank-loan funds were a niche product among mutual funds. But recently, investors have been piling into them. Frustrated with paltry yields from savings accounts, certificates of deposit, and Treasury bonds, bank-loan funds yield twice as much as the Standard & Poor’s 500 Index.

Find other mutual fund advice in our investing center.

Investors, attracted by their floating rates, poured $60 billion into those funds in 2013, compared with $10 billion in domestic large-cap stock funds. Interest rates, which are based on the London Interbank Offered Rate, or LIBOR, are locked for short periods of time—about 30 to 90 days. Then, when rates rise—something that is likely to happen sooner rather than later—companies pay higher interest on their loans and the fund’s yield rises. For that reason, bank-loan funds do well in periods of rising interest rates, unlike most conventional bond funds.

It’s not that different from variable-rate credit cards. Usually, if the prime rate goes up, so does the annual percentage rate (APR) of a variable-rate credit card. Similarly, if interest rates go up, the creditor (the bank-loan fund) receives more in interest payments.

Investors, though, would be smart to cast a wary eye on bank-loan funds despite their superior yields (about 3.8 percent right now) and the promise that they will only go up. There are potential pitfalls.

Just as banks write off a percentage of the bad credit-card loans in their portfolio, there’s always the chance that the borrower may be unable to make payments on the bank loan, leaving the creditor—the mutual fund investor—out of luck. That’s particularly true in bank-loan funds that increasingly make loans to companies that may not have the greatest credit. With all of the new money in bank-loan funds chasing a limited number of bank loans, portfolio managers are sometimes less particular about which bank loans to buy.

Another worry is that although most funds own hundreds of bank loans at one time, historically loans tend to go bad simultaneously, concurrent with economic conditions. Although bank-loan funds have returned more than 9 percent annually over the past five years, the potholes, like 2008, can be as deep as they were for stocks. Bank-loan funds lost 29.7 percent in that year—more akin to the 37 percent loss of stock funds than the 4 to 5 percent loss in corporate bond funds.

Then there are the fees. Bank-loan funds are relatively expensive propositions, costing investors 1.14 percent annually, according to Morningstar. Part of that expense can be attributed to brisk buying and selling of bank loans: The average turnover of a bank-loan fund was about 70 percent last year. That means that in any 12-month period a bank-loan fund with $10 billion in assets bought and sold $7 billion worth of loans.

If you still decide to invest in bank-loan funds, consider the caveats above, and treat them as an alternative investment—not as a high-yielding substitute for the bond portion of a portfolio. It would also be a good idea to find a manager with expertise in those kinds of investments. Below, we screened for some of the better-performing funds in the category over the past decade: funds with low costs, better returns, and lower turnover than their peers.

Bank shots

The two no-load bank-loan funds below have outperformed the benchmark, and their expenses are lower than the category average.

Fund Ticker 1-yr. return 5-yr. return* Yield (%) Expense ratio (%) Minimum investment Hartford Floating Rate HFLIX 3.4 9.7 4.13 0.70 $2,000 Highland Floating Rate Opportunities HFRZX 10.8 13.5 4.43 1.04 $2,500 Bank Loan Funds index 3.4 9.3 3.77 1.14

Data: Morningstar. Returns as of April 30, 2014.

This article also appeared in the July 2014 issue of Consumer Reports Money Adviser.

More from Consumer Reports:
Dependable washing machines for $600 or less
Best and worst cars by brand
Get the best cell phone plan for your family and save up to $1000 a year

Consumer Reports has no relationship with any advertisers or sponsors on this website. Copyright © 2006-2014 Consumers Union of U.S.

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From a grant to HECS-style loan

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The 25-year-old from Dulwich Hill will miss out on the last two instalments, worth $1200 and $1500 respectively.

”This is something we have all been working towards and … have all been expecting to get,” she said. ”Just to be told it’s not happening any more is so disappointing.”

The Tools for your Trade payment, worth $915 million over four years, was axed in the federal budget. The government announcing eligible students could apply for the $20,000 loans instead.

But Ms Martin, who is working at Surry Hills restaurant Porteno, questioned how recently qualified apprentices would afford to pay the loan.

”For a chef, when you finish your training you are lucky to get a base salary of about $45,000 a year,” she said. ”It’s not a lot of money to be thinking about taking on $20,000.”

Under the scheme, apprentices have to start repaying the loan once their income reaches $53,345 a year.

The Greens have raised concerns about the loan scheme. Their analysis showed that it would take a carpenter on a starting salary of $40,000 up to 34 years to repay a $20,000 loan.

The estimates take into account the 20 per cent bonus an apprentice receives for completing their training and a 3.9 per cent pay rise.

The findings show an electrician on a starting salary of $62,000 would take seven years to pay off the loan, and a plumber starting on $55,000, eight years. A welder would take up to 13 years and an automotive engineer, 23 years.

Greens higher education spokeswoman Lee Rhiannon said: ”The Abbott government is trying to portray itself as a supporter of apprentices when in reality it is ripping more than $900 million out of apprentice training programs.”

The national secretary of the Construction, Forestry, Mining and Energy Union, Dave Noonan, said the loans scheme would discourage young people from entering into apprenticeships and exacerbate the skills crisis.

A spokesman for the Department of Industry said the Greens’ modelling was flawed and that the loans, which are indexed annually to the consumer price index, would take an average of eight years to repay once an apprenticeship is completed.

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