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Cash-strapped Greece repays first part of IMF loan due in March

By George Georgiopoulos and Lefteris Papadimas

ATHENS (Reuters) – Greece repaid on Friday the first 310 million euro instalment of a loan from the International Monetary Fund that falls due this month as it scrambles to cover its funding needs amid a cash crunch.

Prime Minister Alexis Tsipras’ newly elected government must pay a total of 1.5 billion euros to the IMF this month over two weeks starting on Friday against a backdrop of fast-depleting cash coffers.

“The payment of 310 million euros has been made, with a Friday value date,” a government official told Reuters, requesting anonymity.

Athens has to pay three other instalments, on March 13, 16 and 20 as part of repayments due to the IMF this month.

Tsipras’ government has said it will make the payments but there has been growing uncertainty over Greece’s cash position as it faces a steep fall in tax revenues while aid from EU/IMF lenders remains on hold until Athens completes promised reforms.

Athens sent an updated list of reforms on Friday to Brussels ahead of a meeting of euro zone finance ministers on Monday, a Greek government official said, adding that the list expanded on an earlier set of proposals.

The list includes measures to fight tax evasion and red tape and facilitate repayment of tax and pension fund arrears owed by millions of Greeks, the official said. It also proposes a “fiscal council” to generate savings for the state.

Athens is running out of options to fund itself despite striking a deal with the euro zone in February to extend its EU/IMF bailout by four months.

Greece has monthly needs of about 4.5 billion euros, including a wage and pension bill of 1.5 billion euros. It is not due to receive any financial aid until it completes a review by lenders of final reforms required under its bailout.

Greece’s central bank chief, Yannis Stournaras, said after talks with Tsipras on Friday that Greek banks were sufficiently capitalised and faced no problem with deposit outflows.

“There is full support for Greek banks (from the ECB), there is absolutely no danger,” he said after the meeting. But he added Monday’s euro zone meeting had to be “successful”.

The ECB will resume normal lending to Greek banks only when it sees Athens is complying with its bailout programme and is on track to receive a favourable review, ECB President Mario Draghi said on Thursday.

Athens has begun tapping cash held by pension funds and other entities to avoid running out of funds as early as this month. Various short-term options it has suggested to overcome the cash crunch have been blocked by euro zone lenders.

Tsipras’ leftist Syriza was elected on Jan. 25 on a promise to end the belt-tightening that came with the EU/IMF bailouts.

(Additional reporting by Renee Maltezou; Editing by Gareth Jones)

Politics & GovernmentBudget, Tax & EconomyInternational Monetary Fund […]

Gers agree £10m Sports Direct loan

The cash-strapped Rangers board has agreed a £10million emergency loan deal with Mike Ashley’s Sports Direct firm, it has announced to the Stock Exchange.

Without the injection of fresh funding, the Ibrox outfit would not have been able to cover pay checks due to be delivered on Thursday.

The loan will be secured against Murray Park, Edmiston House, Albion Car Park, and the Club’s registered trademarks – but not Ibrox.

The move spells the end of attempts by the Three Bears – wealthy fans Douglas Park, George Letham and George Taylor – to have their own loan offer accepted.

It was their promise to match Ashley’s deal whilst demanding Ibrox remained unsecured that forced the Newcastle United owner to drop the stadium from the terms of his agreement.

In return for the money – which will be paid to Rangers in two £5million tranches – Ashley will be able to nominate two more directors to the Light Blues board. His associates Derek Llambias and Barry Leach are already serving as chief executive and financial director.

As well as that, Rangers will transfer 26 per cent of its holding in Rangers Retail Ltd (RRL).

RRL was a joint venture set up by the club and Sports Direct, with Rangers in control of 51 per cent and Ashley’s company controlling the rest. Fans, however, were already concerned that it was overly beneficial to Ashley.

Now as part of the new loan deal, the club has also agreed that from the 2017/8 season, for the duration of the loan, any future shirt sponsorship proceeds “will be for the benefit of RRL”.

In a lengthy 7am statement to the Stock Exchange, the board said: “The Board of Rangers announces that Rangers Football Club Limited has entered in to agreements with SportsDirect.com Retail Limited and associated companies, to provide a long term on-going credit facility of up to £10m.

“The Company’s financial condition has been perilous for a number of months exacerbated by lower than expected match attendances. The Directors have implemented a cost cutting program with which they have made significant progress.

“There is however an immediate need for a substantial injection of capital, and the Directors have considered a number of options.

“The terms negotiated with SD (which are reversible in respect of the Facility) represent the optimum combination of quantum and duration of funding, allowing the Company time to arrange permanent capital which can be used for strengthening the playing squad.

“The Facility is structured in two separate interest free tranches. £5 million will be available immediately for working capital purposes and for the repayment of the credit facilities with MASH Holdings Limited which was entered into on 27 October 2014.

“All rights and security associated with the MASH facility will be cancelled.

“The Club will transfer 26 per cent of the share capital in Rangers Retail Limited to SD for the duration of the Facility, which will be transferred back, at no cost, upon repayment of all outstanding sums owed by Rangers and its subsidiaries to SD. There is no specified repayment period for the first tranche of the Facility.

“The Facility is to be secured by (1) a floating charge over the Club’s assets and (2) fixed charges over Murray Park, Edmiston House, Albion Car Park, and the Club’s registered trademarks.

“None of the security that is being given to SD covers Ibrox Stadium, which is specifically excluded and remains in the full ownership of the Club, free from any security.

“SD will also have the right to nominate two directors to the board of Rangers for the duration of the Facility, any such nomination will be subject to regulatory consent pursuant to the AIM Rules and other regulatory bodies.

“If the entire sum drawn down is repaid, the Facility will be deemed to be terminated, all security will be released, the 26 per cent of RRL will revert to the Company and all rights of SD to nominate Directors to the Board of the Company will cease.

“The second tranche of £5million, which repayable five years after drawn down, will be used, if required, for working capital purposes and is subject to due diligence by SD prior to drawn down.

“The Company has also agreed that from the 2017/8 season, for the duration of the Facility, any future shirt sponsorship proceeds will be for the benefit of RRL.

“RRL will declare a dividend of a total of £1,610,000 prior to the Transfer.

“The Club will use the proceeds of its share of this dividend, inter alia, to repay sums owing to SD in respect of the cessation of onerous leases on unprofitable stores entered into by a previous Rangers management team.

“The Directors would like to thank all the Rangers Stakeholders who showed an interest in helping the Company.”

Chairman David Somers said: “The Board has sought for some time to establish a long term funding solution for the Company in order to create a platform of stability to build for the future.

“This Facility begins this process and we very much hope that it will be augmented with further permanent capital in due course.

“In addition, the executive team have made strides in addressing the cost base of the Company in order to improve our financial condition and working capital profile.

“We very much hope that we can now move away from having to seek short term funding solutions and can focus our efforts towards investing in the first team playing squad, a return to profitability and to re-establishing Rangers in the top league in Scottish Football and in due course, to European competition.

“The Board now calls upon all shareholders to rally together to achieve this goal.”

Ashley has now strengthened his grasp on the money streams entering the club, but the balance of power could yet swing away from him in the coming weeks if Dave King succeeds in routing the board at the general meeting he has called.

[…]

New payday loan rules to cap fees, total cost and default charges …

The UK’s financial watchdog is clamping down on payday loans, with new rules to ensure that borrowers are never forced to repay more than double the amount of their original loan.

The Financial Conduct Authority (FCA) said interest and fees will be capped at 0.8% a day, lowering the cost for most borrowers, while the total cost of a loan will be limited to 100% of the original sum. Default fees will be capped at £15 in an effort to protect people struggling to repay their debts.

The changes, which will come into force on 2 January, mean that someone borrowing £100 for 30 days will not pay more than £24 in fees and charges if they repay the loan on time.

But the Labour MP Stella Creasy, who has led the campaign against doorstep lenders, slammed the FCA plans – unchanged from an original draft published in July – as an early Christmas present to the “legal loanshark” industry.

The FCA said it did not want to drive payday lenders out of business. The regulator estimates the lenders will lose 70,000 borrowers, 7% of the total market, as a result of the changes, as they restrict less profitable loans.

Martin Wheatley, the FCA chief executive, said: “I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers. For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.”

In the five months since the FCA took over regulation of consumer credit, the number of loans and the amount borrowed has dropped by 35%.

The chancellor, George Osborne, said: “We created a powerful new consumer regulator to regulate the payday lending industry and legislated to require the FCA to introduce a cap on the cost of payday loans. This is all part of our long-term economic plan to have a banking system that works for hard-working people and make sure some of the absolutely outrageous fees and unacceptable practices are dealt with.”

But critics accused the FCA of allowing “legal loan sharks” to slip through the net. “Today’s news will be welcomed as an early Christmas present for Britain’s legal loansharks,” said Creasy. “This cap is just £1 lower than their current charges. This is an industry where some firms are making nearly three quarters of a million pounds a week from British customers – such a high cap will do little to tackle these rip-off charges.

“We’ve warned regulators this cap needs to be much lower to really change the behaviour of these companies, but today’s announcement shows they are still not listening. Other countries are much stronger at taking on these companies.”

She said borrowers in Japan, Australia, Canada and parts of the US have better protection than UK consumers.

Debt charities gave the plans a cautious welcome, but urged the regulator to ensure that lenders did not simply change their business model to flout the rules.

Joanna Elson, chief executive of the Money Advice Trust, which runs National Debtline, said: “We hope that these measures will bring an end to the inappropriate lending that we have seen from this industry. However, the FCA will need to be vigilant to ensure that lenders do not simply change their business models to try to evade the rules.”

She added that even under the new rules, many people will still end up repaying very high amounts when they would be better off with free debt advice from charities.

The Consumer Finance Association (CFA), which represents some of the best-known payday lenders, has said the plans will drive some firms out of business. It estimates that only four players will remain in the market: three online lenders and one high street chain. “We will inevitably see fewer people getting fewer loans from fewer lenders,” said Russell Hamblin-Boone, chief executive of the CFA.

Wheatley said payday lenders could disappear from the UK high street within a year, although the FCA’s modelling suggested it was more likely that a few players would remain. Speaking on BBC Radio 4’s Today programme, he said: “We don’t want to close the industry, we want to change it so that it operates in a way that delivers good outcomes.”

He dismissed industry claims that thousands of people would lose out as a result of tighter access to credit, saying there were “a lot of myths in this space”.

According to FCA modelling, a majority of the 70,000 people who will no longer have access to payday loans will make do without getting a loan; others would borrow from family or an employer and only 2% would go to a loan shark.

The biggest online payday lender, Wonga, said it “looks forward to launching a cap-compliant product”.

[…]

Do US presidents carry cash?

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18 October 2014 Last updated at 00:33

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Weekendish: The best of the week’s reads 10 things we didn’t know last week The Magazine in full

President Barack Obama’s credit card was rejected in a restaurant. How often do US heads of state spend their own money, asks Jon Kelly.

It’s commonly said the Queen doesn’t carry cash. It seems her American counterpart doesn’t get his wallet out too much either. Barack Obama told an audience that his credit card was rejected in a New York restaurant last month: “It turned out, I guess, I don’t use it enough.” During his term in office, Bill Clinton once had his credit card rejected too.

In the 1995 film The American President, Michael Douglas’s commander-in-chief attempts to buy flowers but is told his cards are “in storage with the rest of your private things”. It’s a similar situation for real-life White House occupants, says presidential historian Thomas Whalen of Boston University: “Everything’s provided for them – they really don’t need money.” The Secret Service agents who are on hand at all times can provide a loan if necessary. John F Kennedy “didn’t carry any cash at all, even before he was president. His friends would have to foot the bill for the privilege of hanging out with him”, says Whalen.

Others have been less parsimonious. A wallet belonging to George Washington contained a 1776 two-thirds dollar bill and a 1779 one-dollar bill until it was stolen from a museum in 1992. Abraham Lincoln was carrying a $5 Confederate bill on the night he was assassinated. In 1984 Ronald Reagan was once photographed paying for a $2.46 Big Mac meal with a $20 note, and his successor George HW Bush once showed his American Express card (plain green, not gold) to an eight-year-old who had reacted sceptically when informed that she was talking to the president. Some 14 years later, however, his son George W Bush told a Spanish-speaking journalist that all he had in his pockets was a handkerchief. “No dinero,” Bush added. “No wallet.”

The current incumbent – who earns $400,000 (£248,000) each year and has an annual expense allowance of $50,000 – has been filmed and photographed on numerous occasions paying for food with cash. In July he paid for a $300-plus bill at a takeaway barbecue restaurant in Austin, Texas, with a JP Morgan credit card (he was allowed to jump the queue). But now it appears that in New York last month the transaction wasn’t so successful. Thankfully for the president, his wife Michelle was present on that occasion to pick up the tab.

Subscribe to the BBC News Magazine’s email newsletter to get articles sent to your inbox.

[…]

Short-Term Loans Comes at a Heavy Price

Retired and low on cash, Lynn Frampton borrowed $2,600 from online lender CashCall to make ends meet. The loan came with a hefty price tag: a total finance charge of more than $11,000 if she paid it over four years. Her monthly payments were almost $300. The loan carried an annual interest rate of 138.58 percent.

“I can’t believe I agreed to that,” says Frampton, now 67. “It was stupid on our part. The interest is outrageous.”

The Santa Ana resident made her first two payments, then fell behind. Frampton, who eventually resumed payments, says she owes roughly $10,000. Delbert Services, a CashCall affiliate, has offered to settle her debt for $980, she says.

It might seem like a lot less, but she still can’t afford it.

It’s not illegal in California to charge triple-digit interest annually on consumer loans. The trick is to craft a loan of $2,500 or more.

Lenders who are licensed under the California Finance Lenders Law can choose any interest rate they want for consumer loans of $2,500 and over. Most loans under that amount are subject to an interest rate cap of roughly 30 percent.

This $2,500 cut-off played a prominent role in a false advertising complaint filed earlier this summer by the California Commissioner of Business Oversight, which asked that CashCall’s finance lenders licenses be suspended for up to 12 months. The company has asked for a hearing on the matter.

The regulator claims the Orange-based lender falsely advertised loans of up to $2,600. When consumers called the company or went to its website, they were told CashCall did not make such loans.

The CBO complaint states that when consumers told CashCall they wanted a loan for less than $2,600, the company routinely told them that on the day of funding or shortly thereafter, borrowers could give back whatever amount they didn’t want as a prepayment. On these loans, CashCall charged up to 179 percent interest.

CashCall declined to comment.

LENDING OPTIONS

The industry of small-dollar lenders has insisted it provides a valuable service for borrowers, and that higher interest rates counter the risk of loaning money to consumers with lower credit scores.

Small-dollar loans are a topic “near and dear to my heart,” says state Sen. Lou Correa, D-Santa Ana. A member and former chairman of the State Senate Committee on Banking and Financial Institutions, Correa said he believes these loans are a form of credit for people who don’t have other options.

“My perspective is to do everything we can to assure that people can borrow money — that people have access to capital,” Correa says. “When you begin to talk about caps on fees, what people should charge, what they should not charge … you may actually be limiting people’s ability to borrow. There may not be loans if lenders aren’t interested in lending money.”

Correa said it can be difficult for lenders to cover their costs when faced with interest-rate caps for loans under $2,500.

RATE CAP HISTORY

The $2,500 line in the lending sand dates to 1985.

When the late Democratic state Sen. Rose Ann Vuich authored a bill to lower the ceiling on regulated loans to $2,500 — increasing the number of loans with unlimited rates — supporters said they thought it would open up competition and eventually push rates down. In fact, the limit had been lowered to $5,000 from $10,000 in 1983.

“Rates above $5,000 are now set competitively in the marketplace and are generally below the former statutory rate ceilings,” Vuich wrote in a letter to then-Gov. George Deukmejian. The current bill “is expected to lead similarly to lower rates for loans in the $2,500 to $5,000 bracket.”

The state Department of Corporations at the time argued in favor of the 1985 bill, stating “rate regulation provides very little consumer protection and may even work against consumers since lenders tend to lend money at the maximum allowable rate irrespective of the credit worthiness of the borrower.”

THE SWEATBOX

Critics contend that on small-dollar loans, repayment is not a priority.

A 2008 class action lawsuit filed against CashCall in San Francisco federal court claims CashCall made loans with unconscionable loan terms including unconscionable usury rates. The suit partly involves California residents who borrowed from $2,500 to $2,600 from CashCall at an interest rate of 90 percent or higher from 2004 to 2011 for personal, family or household use.

In a counterclaim, CashCall denied the allegations, requested they be dismissed and asked for damages resulting from two of the plaintiff’s alleged breach of contract when they defaulted on their loans. The parties are currently in settlement talks.

Paul Leonard, the California director of the Center for Responsible Lending, has been following the lawsuit against CashCall.

He notes the litigation has brought to light a high level of defaults on the lender’s $2,600 loan products. According to a judge’s recent order from the suit, “the default rate for the $2,600 loan product has been 35 percent to 45 percent” from 2004 to the present.

Leonard asks at what point do excessive levels of charge-offs (debts written off as a loss by the lender) suggest these loans are being given to consumers without properly analyzing their ability to repay them.

He compares the loan process to the so called “sweatbox” model.

Georgetown University law professor Adam Levitin used the term in congressional testimony on abusive credit card practices. Coined by another law professor, “the sweatbox model does not aim to have the principal repaid,” Levitin wrote in his testimony on the credit card industry in 2009.

Levitin explains that in this model, a lender is counting on interest and fees to make back enough money should the consumer default and never repay the principal. Ultimately the principal gets discharged in bankruptcy, and the lender still makes a profit. By using high interest rates and high fees, the lender keeps the borrower in a proverbial sweatbox as long as possible.

“The business model is based on the idea that they’re going to eat really high levels of losses and still make a profit,” Leonard says. “Maybe it’s profitable for the business, but for the borrowers it’s horrific.”

CashCall’s website states borrowers must provide an active bank account statement and proof of income as part of its qualification process for unsecured personal loans.

AUTO TITLE LOANS

Auto title lenders are another group that seem to be capitalizing on California’s $2,500 and higher lending loophole. These loans, which use the borrower’s car title as collateral, are usually for less than 30 days and allow the lender to take ownership of the borrower’s car if the loan is not repaid. The lender can then sell the car to recoup the loan amount.

These loans are based on the value of a borrower’s car that is owned free and clear, rather than the ability of the borrower to repay the loan, according to a 2013 report by the Center for Responsible Lending. The report analyzed records from more than 500 auto title borrowers made public during a suit against a Delaware-based lender. The median loan size was $845.

The Department of Business Oversight’s 2012 annual report shows that registered California lenders made less than 1,000 auto title loans under $2,500, and about 8,000 loans of $5,000 to $9,999 and 1,000 loans of $10,000 or more. But they made more than 54,000 for loans of $2,500 to $4,999.

According to the Center for Responsible Lending, 16 states explicitly allow auto title lending at triple-digit interest rates and four others, including California, allow it through a legislative loophole. Yes, that very same loophole.

PILOT PROGRAM

Seeing a need for more consumer loans in the $300 to $2,500 bracket, the Legislature created a pilot program for Increased Access to Responsible Small Dollar Loans earlier this year. The program targets loans subject to interest rate caps, which might be less attractive to lenders. (Payday loans, which are $300 or less, are an exception to the interest rate cap rule, hence the pilot program’s range.)

The program requires approved licensed lenders to provide some financial education to consumers, and an assessment of the ability to repay in exchange for a slightly higher maximum interest rate of 36 percent. So far, four firms have qualified for the program.

Leonard says there are simple alternatives to small-dollar loans: Ask friends and family or consider different decisions about spending and the urgency of spending.

“Everybody who needs money doesn’t necessarily need a loan to solve their problem,” Leonard adds. Especially if they don’t have the money to pay it off.

Contact the writer: musheroff@ocregister.com

Original headline: $2,500 is a costly line in consumer lending

[…]

How to Compete With All-Cash Home Buyers

As cash buyers continue to inundate ;recovering markets, it’s easy to feel like the underdog ;if your offer includes a pre-approval letter for a mortgage.

In some places — ;especially in the Midwest and Florida — ;more than half of sales in the first quarter of 2014 were closed with cash, ;according to a recent Zillow analysis.

“Cash is always the deal-sealer and the best way to get deals,” said Joe Spake, a longtime real estate agent in Memphis, where nearly half of first-quarter sales were all-cash. “Just, not a whole lot of people have it, especially in the regular-people realm. The average working person is going to have to get a mortgage.”

Across the country, cash buyers are on the decline, but in some markets you’re still very likely to be pitted against one. We asked agents in the country’s most cash-rich markets for advice for buyers who want to stay competitive without ;cash.

The Bottom Line is the Bottom Line

Cash buyers come in looking for a deep discount, said Tony Baroni, an agent in ;Tampa, which trails only Miami in the percentage of homes purchased with cash.

“At the end of the day, all the seller cares about is how much money they’ll get,” Baroni said. “Some sellers don’t care if it’s cash or financed.”

Tucson agent Spirit Messingham has seen buyers get intimidated when they go up against all-cash offers.

“What I tell people … is that most sellers don’t care if I give them a bag of dirty old cash or if I give them a loan from a local lender,” he said.

Get a Solid Loan

If you can’t write a fat check, get pre-approved and know how much you can put down on a home before you start shopping, agents said. Spake believes it’s worth seeking out a local lender. ;The seller or listing agent might even recognize the lender’s name — ;or at least the bank’s name — ;and that could give you an edge.

Plus, Spake said: “I can go to that person’s office and stand on his desk if I have to.”

How Much Do You Want it?

Cash buyers are often investors, so they’re looking for a great deal. If a competing buyer is shopping for a home, it’s sentimental. The home ;might be worth more to them than the asking price.

“When we go up against a cash buyer, you need to act decisively,” Messingham said. “How badly do you want it? Because it’s not just an investment. It’s not like we’re trying to buy Apple [stock] at a 52-week low. This is going to be your home.”

Lyn Miller, an agent in Miami, agreed: “Sometimes you’ve got to offer over the asking price to get them.”

Keep it Simple

One major advantage of cash is simplicity. Relying on the ;loan process adds a level of complexity to the deal. To compensate for that, agents said it’s important to make your offer straightforward and simple.

Baroni recommends short inspection periods and lots of earnest money.

In Memphis, a popular market for investors, Spake tells his buyers ;not to ask for anything they don’t really need.

“The bottom line for me is to make the cleanest deal for the seller possible,” he said. “I want them to pick me, and I don’t want them to have a lot of hidden paragraphs” in the offer.

Personalize It

Baroni took a chance recently and delivered an offer with a photo of his buyer and a letter explaining the buyer’s story. The offer came in $5,000 lower than the highest offer on the table, but the seller picked his client anyway.

A human angle is something investors often can’t bring to the table, and it can sometimes seal the deal just as well as a briefcase full of George Washingtons.

Read More from Zillow:

Metros ;Where Cash Buyers Dominate the Market 10 Markets Where Borrowers ;Have the Edge 15 Cities Where Renting Rules

Emily Heffter, a reporter and writer for Zillow Blog, covers celebrity real estate, unusual properties, and other real estate topics. Read more of her work ;here.

;

[…]

Payday loans cost cap – the key questions answered – The Guardian

Image payday-loan-company-011.jpg

Shadow consumer minister, Stella Creasy, says the FCA must ensure that all payday loan companies will be covered by the proposed caps. Photograph: Jonathan Nicholson/Demotix/Corbis

The financial watchdog the Financial Conduct Authority (FCA) has unveiled proposals for a cost cap on payday lenders – short-term loan companies such as Wonga and The Money Shop that typically offer borrowing of £100 to £1,000 arranged over days or weeks.

Why is the cost being capped?

The payday loans business has been booming since the financial downturn and debt advice groups have reported increasing numbers of people seeking help with problem borrowing. One issue has been the way that costs mount up if repayments are missed or delayed – high interest rates and default charges of £40 in some cases mean small loans can quickly spiral. After lobbying from charities, consumer groups and Labour MPs the chancellor, George Osborne, asked the FCA to work on plans for a cap.

How will the cap work?

The amount that lenders can charge will be limited. Someone taking out a typical loan over 30 days and repaying on time will not pay more than £24 for each £100 they borrow – the figure includes interest and all other charges for taking out the loan and extending its term.

There will be a separate cap on default charges, and borrowers who miss a repayment or make it late can only be charged £15. Interest can still be applied after the missed payment date, but the FCA has also proposed an overall cap on costs which will prevent anyone having to repay more than double the amount they borrowed.

With the cap in place, the APR is 1,270% for a 30-day £100 loan.

How much are people paying now?

The regulator says that lenders are currently making between 0.4% to more than 4% a day from borrowers, while its cost cap will equate to 0.8%, so people are generally paying more now. Wonga, the UK’s largest payday lender, charges interest at 1% a day plus a £5.50 “transmission fee” – borrowing £100 for 30 days will cost £37.15. Its default fee is £20 and it charges £10 if you wish to extend the loan.

The Money Shop charges £29.99 on £100 and applies a default fee of £29 plus default interest of at least 1% a day. And it warns customers: “You must pay us any reasonable expenses and costs that we may incur in taking steps to enforce rights against you under the loan agreement.”

The FCA says the average borrower will save £32 for each loan they take out.

Will lenders be able to pass on charges for debt collection?

Yes, but these will be included in the cap, so the repayments will still not be able to go over 100% of the original loan. All costs including things such as insurance will also be included. The FCA says: “This is necessary in order to avoid the risk of gaming the cap through ancillary service.”

When will the cap apply?

The cap comes into force on 2 January 2015 and applies to all loans arranged after that date and any that are rolled over.

Does it go far enough?

Not according to the shadow consumer minister, Stella Creasy, who has been a long-time campaigner against the industry. “Anyone who thinks this is the end of legal loan sharking in Britain is in for a nasty shock,” she said. “Without further revision, this total cost cap of 100% of the borrowed amount will leave British consumers less well protected than their counterparts in Japan and most of Canada and the United States. The Financial Conduct Authority must commit to continually reviewing and reducing this cap and as well as ensuring it covers the whole of the industry to make sure none of these legal loan sharks slip through their net.”

Citizens Advice said the cap would help limit the scale of debts but its success would depend on enforcement. It said consumers also needed more choice so they did not need to use payday loans.

[…]

Money talks: Banks offering cash to entice customers

‘ + ‘ript>’); } function renderJAd(holderID, adID, srcUrl, hash) { document.dcdAdsAA.push(holderID); setHash(document.getElementById(holderID), hash); document.dcdAdsH.push(holderID); document.dcdAdsI.push(adID); document.dcdAdsU.push(srcUrl); } function er_showAd() { var regex = new RegExp(“externalReferrer=(.*?)(; |&|$)”, “gi”); var value = regex.exec(document.cookie); if (value && value.length == 3) { var externalReferrer = value[1]; return (!FD.isInternalReferrer() || ((externalReferrer) && (externalReferrer > 0))); } return false; } function isHome() { var loc = “” + window.location; loc = loc.replace(“//”, “”); var tokens = loc.split(“/”); if (tokens.length == 1) { return true; } else if (tokens.length == 2) { if (tokens[1].trim().length == 0) { return true; } } return false; } function checkAds(checkStrings) { var cs = checkStrings.split(‘,’); for (var i = 0; i 0 && cAd.innerHTML.indexOf(c) > 0) { document.dcdAdsAI.push(cAd.hash); cAd.style.display =’none’; } } } if (!ie) { for (var i = 0; i 0 && doc.body.innerHTML.indexOf(c) > 0) { document.dcdAdsAI.push(fr.hash); fr.style.display =’none’; } } } } } if (document.dcdAdsAI.length > 0 || document.dcdAdsAG.length > 0) { var pingServerParams = “i=”; var sep = “”; for (var i=0;i 0) { var pingServerUrl = “/action/pingServerAction?” + document.pingServerAdParams; var xmlHttp = null; try { xmlHttp = new XMLHttpRequest(); } catch(e) { try { xmlHttp = new ActiveXObject(“Microsoft.XMLHttp”); } catch(e) { xmlHttp = null; } } if (xmlHttp != null) { xmlHttp.open( “GET”, pingServerUrl, true); xmlHttp.send( null ); } } } function initAds(log) { for (var i=0;i 0) { doc.removeChild(doc.childNodes[0]); } doc.open(); var newBody = fr.body; if (getCurrentOrd(newBody) != “” ) { newBody = newBody.replace(“;ord=”+getCurrentOrd(newBody), “;ord=” + Math.floor(100000000*Math.random())); } else { newBody = newBody.replace(“;ord=”, “;ord=” + Math.floor(100000000*Math.random())); } doc.write(newBody); document.dcdsAdsToClose.push(fr.id); } } else { var newSrc = fr.src; if (getCurrentOrd(newSrc) != “” ) { newSrc = newSrc.replace(“;ord=”+getCurrentOrd(newSrc), “;ord=” + Math.floor(100000000*Math.random())); } else { newSrc = newSrc.replace(“;ord=”, “;ord=” + Math.floor(100000000*Math.random())); } fr.src = newSrc; } } } if (document.dcdsAdsToClose.length > 0) { setTimeout(function() {closeOpenDocuments(document.dcdsAdsToClose)}, 500); } } }; var ie = isIE(); if(ie && typeof String.prototype.trim !== ‘function’) { String.prototype.trim = function() { return this.replace(/^s+|s+$/g, ”); }; } document.dcdAdsH = new Array(); document.dcdAdsI = new Array(); document.dcdAdsU = new Array(); document.dcdAdsR = new Array(); document.dcdAdsEH = new Array(); document.dcdAdsE = new Array(); document.dcdAdsEC = new Array(); document.dcdAdsAA = new Array(); document.dcdAdsAI = new Array(); document.dcdAdsAG = new Array(); document.dcdAdsToClose = new Array(); document.igCount = 0; document.tCount = 0; var dcOrd = Math.floor(100000000*Math.random()); document.dcAdsCParams = “”; var savValue = getAdCookie(“sav”); if (savValue != null && savValue.length > 2) { document.dcAdsCParams = savValue + “;”; } document.dcAdsCParams += “csub={csub};”; var aamCookie=function(e,t){var i=document.cookie,n=””;return i.indexOf(e)>-1&&(n=”u=”+i.split(e+”=”)[1].split(“;”)[0]+”;”),i.indexOf(t)>-1&&(n=n+decodeURIComponent(i.split(t+”=”)[1].split(“;”)[0])+”;”),n}(“aam_did”,”aam_dest_dfp_legacy”);

Among the major banks, NAB’s UBank is offering new customers $2,014; the Commonwealth Bank has a $1,000 rebate for first home buyers; Westpac-owned St George, Bank of Melbourne and BankSA are all offering $1,250 to new customers; and ANZ is offering up to $1,000 to cover the costs of customers who switch banks.

Non-bank lender Better Choice is seeking to tap into concerns about fuel prices by offering new customers discounts of between 10c and $1 a litre on petrol, depending on how much they borrow.

Several of the offers have been launched in the opening months of 2014, as banks scramble to win new customers in an environment of very cheap credit.

Mortgage Choice chief executive Michael Russel, who has worked in mortgage broking for 13 years, said banks made these offers from time to time but he had never seen so many cash inducements being offered.

”I cannot recall this many banks offering this many cash rebates at the same time,” Mr Russel said.

Kirsty Lamont, of interest rate comparison website Mozo, said the number of banks offering cash inducements had surged compared with spring last year, after the last cut in official interest rates in August.

”There’s been a huge spike in the number of lenders offering cash back sweeteners to borrowers, especially refinancers,” she said. ”With interest rates so low, banks are having to find other levers to pull.”

All of the offers have specific conditions, such as as minimum borrowing amounts or deposits.

With the Reserve Bank this week predicting a ”period of stability in interest rates,” Mr Russel said he would not be surprised if more lenders start to promote cash-backs as way to appeal to borrowers.

However, the trend comes amid a debate about the banking industry’s heavy focus on on winning new business via discounting or perks such as cash backs, rather than passing on savings to their existing customers.

The chief executive of RBS and former senior CBA executive, Ross McEwan, last month said the British bank would no longer offer the most attractive prices to new customers.

”We will reward our customers for loyalty and stop giving the best deals only to those who switch banks or apply online,” he wrote in the Guardian.

The executive chairman of Yellow Brick Road, Mark Bouris, has also urged the government’s financial system inquiry to investigate banks’ discounting policies, saying they limit market transparency.

CBA’s general manager of home loans, Clive van Horen, said the bank had found that offering cash was often simpler for customers than trying to explain the savings of a lower interest rate.

”The simplicity of $1,000 cash for a fist home buyer is quite appealing,” he said.

Banks would inevitably offer inducements to new business, but there was not a ”massive disparity” between what its old and new customers were paying for credit.

”It’s like any new business. One is going to be targeting offers to new customers,” he said.

He said the bank had not changed its lending standards since the global financial crisis. ”We have absolutely not relaxed our credit standards,” he said.

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Fair pay will save people from pay day lenders | ToUChstone blog: A …

Image paydayloans.jpg

Paul Blomfield MP campaigning against unscrupulous pay day lenders

Fair pay will save people from pay day lenders

25 Mar 2014, by Guest in Society & Welfare

Last week George Osborne told the House of Commons ‘This is a Budget for building a resilient economy’. What he didn’t say is that his vision of a resilient economy is one built on low pay jobs and on squeezed, frozen and declining wages (or ‘pay restraint’ in Osborne-speak).

Yes, some growth and jobs are returning but there’s precious little to celebrate when the average person is £1600 worse off a year under this Government; when increasing numbers of people are only able to find work in low paid, insecure zero hours employment; nor when one of the areas of fastest growth is payday lending.

I believe Labour has been right to focus on the cost of living crisis. And rising prices are an important part of the argument. But the real problem is the falling value of wages. The roots of our cost of living crisis lies in a massive structural shift in our economy, based on the neo-liberal economics introduced by Margaret Thatcher. And it’ll come as no surprise that declining wages have gone hand-in-hand with the deliberate weakening of trade unions.

In 1975 the proportion of national income going on wages was 65%, by 2011 this had fallen to 53.7%. Meanwhile the share of GDP going to shareholders at the top has soared. In a recent article Will Hutton powerfully argued that over this period between 5-7% of GDP has ‘moved permanently from the workforce to shareholders’. As profits have soared and shareholders have taken home a bigger share of the rewards workers have lost out.

As wages have declined, and particularly sharply since 2010, millions of people have turned to credit like payday loans and racked up personal debt as the only way of maintain their living standards. I’ve been campaigning to stop the payday loan rip-off and last week took part in a TV debate about debt and payday loans. The usual suspects argued that the ‘feckless poor’ were getting loans for Xboxes and TV’s, ignoring the truth. The vast majority of people who are forced to take out a payday loans need them for food, for fuel bills, and for rent. This is Britain 2014 where low pay forces people into the open door of The Money Shop.

As a result of pressure from MPs, consumer groups and debt advisers, new payday loan regulations are now coming in and if properly enforced should stop some of the worst rip-off practices. But until wages rise to cover the cost of everyday essentials the high-cost credit will always be there with easy-access loans for people who can’t make ends meet.

Big steps have to be taken to tackle low pay and I hope the Fair Pay Fortnight will shine the spotlight on them. The National Minimum Wage used to be a safety net, but it’s become the norm. It needs a significant increase and we need a shift to the Living Wage. We need to strengthen collective pay bargaining so that trade unions can play a bigger role in all areas of employment, public and private, in securing wage increases. And we need workers sitting on remuneration boards in all workplaces so the voices and demands of staff are heard, alongside those of shareholders and executives.

Until Britain gets a pay rise, our cost of living crisis and personal debt crisis will only deepen. George Osborne can go on trumpeting his economic success story, but for the millions of people in low pay jobs and struggling to make ends meet this will remain a hollow ‘Alice in Wongaland’ recovery.

EVENT:

Paul Blomfield MP will be speaking at a Fair Pay Fortnight lunch event in Sheffield on Friday 4

th

April with USDAW and the TUC on the links between low pay and pay day loans. You can find out more and

reserve your place online here

. For more information contact Neil Foster at

[email protected] […]

Wonks and Wonga: Payday lending and time-poor politicians | 10 …

As somebody who works for a debt advice charity, I was interested to hear George Osborne’s announcement that Government intends to cap the interest rate payday lenders can charge. The harm caused by this type of high-interest lending was first highlighted by consumer organisations such as mine, and many third-sector bodies contributed to the high-profile campaign on the problem run by the Labour MP Stella Creasy. However, the announcement was a little confusing. After all, the concept of an interest rate cap had previously been rejected by Government on multiple occasions. Why the sudden change of approach? It seemed unlikely that the Chancellor had, Grinch-like, experienced a sudden change of heart.

A blog on the WonkComms site gave me a clue. In October Leonora Merry brilliantly explored an occasion when academic policy theory seemed to play out in real-life politics. To me, George Osborne’s unexpected reversal demonstrated another such collision between theory and practice. In this case, the Chancellor’s sudden change of policy on payday appeared to be a real-world example of Baumgartner and Jones’ ‘Punctuated Equilibrium’ theory.

The theory rests on two basic principles. One, politicians have limited time and intellectual resources, and must prioritise. Therefore policy often stays static for long periods. Two, taking this into account, policy on an issue can change rapidly if it starts to attract a lot of attention, especially popular opinion conveyed by the media.

The argument goes like this. Politicians are assailed by so many different issues they can only concentrate on the most pressing. Therefore, as long as something is contained in a policy ‘sub-system’ (often comprising regulators, consumer groups and industry), where there is common understanding, they can effectively ignore it.

However, the theory continues, if an issue “breaks-out” from this policy sub-system and becomes high-profile, if a ‘feedback loop’ is created by multiple actors all discussing a subject, with the weight of opinion all on one side, then decision makers may be forced to attend to it. They must at least pay attention to an issue that is constantly thrown across their desk by newspapers and this can drive seemingly rapid policy change.

How does this apply to payday loans? Well, it appears we have seen this exact theoretical circumstance play out in the payday loan debate. Initially it was low profile because relatively few people were affected. In 2009 only 2% of people in financial difficulty had a payday loan and, crucially I think, there were far fewer payday lending shops on the high-street. The media wasn’t particularly interested. Therefore decision makers could ignore the subject and leave it to a policy sub-system comprising regulators such as the Office of Fair Trading (OFT) and consumer groups like Citizen’s Advice. Lenders could remain lightly regulated, no far-reaching policy solutions need be considered, nothing to see here.

But then, over time, the situation changed. Fundamentally this was driven by the continuing personal financial hardship caused by the economic crisis. Unemployment and part-time work increased, wages declined and for millions making ends meet became harder and harder. This led to the rise of the payday lender, people running out of cash at the end of the month turned to them for crisis loans. By 2012 the Competition Commission reported 1 million people were taking out payday loans every year. This growth, accompanied by a higher visibility on the high-street, got MPs and the media interested, and not just interested but vocal. So, using extensive data provided by consumer charities, MPs and the media made sure that the payday debate dominated the consumer finance agenda. Debate after debate, news story after news story brought it up. Eventually the concatenation of voices started to force the issue from its policy sub-system onto the desk of decision makers.

First the competition commission was dragged in, then the new, high-profile, financial regulator the Financial Conduct Authority. Eventually the pressure seems to have became too much and the sub-system membrane split, the equilibrium was well and truly punctuated. The Chancellor acted, and reached out for the most popular suggested policy solution, cost capping. Of course, it helped that the issue overlapped with another the Government felt weak on, the declining standard of living, and therefore action on one could be spun also as action on the other.

So there we have it. I’d argue a pretty good example of the intersection of theory and reality. But what lessons can it teach us? I think three.

One, campaigning organisations shouldn’t be afraid to move into already well populated issue areas if they have new information and /or perspectives to bring. Weight of data can push an issue from a policy sub-system onto the national agenda, like a straw incapacitating a camel.

Two, never underestimate the importance of the visual representation of a problem on decision makers. Yes, payday lending merited action on the basis of hard evidence on paper, but the fact that most MPs now see dozens of payday shops on their local high street shouldn’t be underestimated.

Three, issues that touch on multiple Governmental concerns, that are cross-cutting, have more of a chance of escaping the policy sub-system. If organisations can find an issue that is sensitive for many Government departments, and policy makers, for many different reasons, then success is more likely.

Of course, I’m not going to pretend these lessons don’t reinforce what campaigning professionals already know. But at least now we can use long words and quote fancy theories when putting them into practice.

Joseph Surtees is a part-time student on the MSc Government, Policy and Politics at Birkbeck. This post was originally published on WonkComms, a blog run by communications staff working within research institutions.

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