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Payday loan adverts could be banned on television before 9pm …

Payday loan commercials could be banned from TV before the 9pm watershed, under proposals being considered by the UK advertising regulator.

The Broadcast Committee of Advertising Practice (Bcap), the body responsible for writing the rules for TV ads, is already looking at the content of payday loan commercials.

The government has now asked Bcap to extend the scope of its review to look at the scheduling of payday loans ads and a potential pre-watershed ban.

This extension of the investigation was revealed by Baroness Jolly, a Liberal Democrat peer, in a session in the Lords discussing the report stage of the consumer rights bill on Wednesday.

“Treasury ministers have asked Bcap to broaden the remit of its review to ensure that it also considers the appropriateness of its scheduling rules, as well as those around content,” she said. “Treasury ministers are writing to Bcap formally to set out this request. Bcap has agreed to this and will expand its review with a view to publication of its findings, in full, in the new year.”

The extension of the review will push back publication deadline of Bcap’s investigation into payday loan ads, which began in June and was due imminently.

The Advertising Standards Authority said it has banned 25 payday loan ads since April 2013.

The existing advertising code already prohibits payday loan ads from encouraging under 18s to either take out a loan or pester others to do so for them. The rules also require that ads must be socially responsible.

According to research by the media regulator Ofcom children on average see around 1.3 payday loan ads on television per week, out of around 17 hours of weekly TV viewing.

Payday loans ads comprised a relatively small 0.6% of TV ads seen by children aged four to fifteen, according to Ofcom.

The Consumer Finance Association, which represents payday lenders making up 60% of the multibillion pound a year UK industry, and Wonga have explicit policies not to advertise on children’s TV.

“We are pleased to see the government recognise that this is a problem,” said Joanna Elson, chief executive of the Money Advice Trust, the charity that runs the National Debtline.

“On the debt advice frontline we have become increasingly concerned that high cost credit is in danger of becoming normalised amongst young people. Restrictions on payday loan advertising before the watershed, on the same basis as those already in place for gambling and alcohol, would be a very welcome step.”

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NI Executive agrees to £100m loan


10 October 2014 Last updated at 08:50

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Delicious Digg Facebook reddit StumbleUpon Email Print The Department of Health will receive £60m and the Department of Justice will receive almost £30m

Northern Ireland budget pressure

Treasury loan proposed for Stormont Osborne ‘hears budget plan’ ‘More positive mood’ at talks PM hopes executive will not collapse

The Northern Ireland Executive has agreed to a loan of up to £100m from the Treasury.

The deal was brokered by the Democratic Unionist Party with the Chancellor, George Obsborne.

It means extra cash for departments, including £60m for the Department of Health and almost £30m for the Department of Justice.

However, the arrangement has been criticised by other parties as an “expensive sticking plaster”.

The Treasury had been asked to supply Stormont with a one-off loan of between £100m and £150m to ease its budgetary crisis.

It is understood that Peter Robinson and Finance Minister Simon Hamilton made the proposal to the chancellor.

Analysis: BBC News NI political editor Mark Devenport

George Osborne said he was concerned the Stormont Executive has found itself in such a dire financial situation.

The money he is willing to lend, he makes clear, will be deducted from the executive’s block grant next year.

The chancellor repeats his intention to levy fines on the executive due to its delay in implementing the UK’s welfare reforms.

Finance Minister Simon Hamilton said he would have preferred a resolution to the dispute over welfare, but he says the loan allows the executive to deal with urgent financial pressures in the health service, the PSNI and services for victims.

Justice Minister David Ford is getting nearly £30m, but he did not like the idea of Stormont running up yet more debt.

The loan will ensure Stormont does not breach its spending limits by more than £200m at the end of the financial year.

However, it will increase the amount Stormont will owe the Treasury next year.

Mr Hamilton said a letter from the chancellor made it clear that Northern Ireland would incur £87m in penalties this year and another £114m next year for a failure to implement welfare reform.

However, he said he was hopeful those penalties might be waived if the parties reach a deal in the near future.

“I hope that if we can get agreement on welfare reform that perhaps those fines may be waived and we may not have to pay that. That would be a tremendous help to public services in Northern Ireland,” he said.

“It wouldn’t solve all of the problems that I face and executive colleagues face, but it certainly would be a great assistance.”

Speaking at a DUP event on Thursday night, First Minister Peter Robinson said the loan was conditional on Stormont agreeing a draft budget for 2015/16 by the end of October.

Justice Minister David Ford said the move was “not good management”

Mr Robinson raised the possibility of opening a voluntary redundancy scheme for the public sector which, he said, could save about £160m a year.

It is also understood that welfare reform is not part of the deal with the Treasury, but instead will feature in the planned political talks due to begin next week.

On Thursday night, Mr Hamilton said: “We had an immediate pressing problem in terms of difficulties within our health services, within victims services, within job creation and within justice.

“We have now been able to cover those pressures to ensure that those problems are now averted, and we can get on with delivering services in Northern Ireland.”

While DUP and Sinn Féin ministers backed the loan deal, Alliance, the SDLP and the Ulster Unionist Party all registered their opposition.

Alliance leader David Ford said taking money from next year for this year was “simply not good management”.

“It’s like borrowing on a second credit card when you reach your limit on a first credit card,” he said.

Regional Development Minister Danny Kennedy of the Ulster Unionist Party said: “I believe that it doesn’t fully deal with the economic issues before us, as an executive.

“It simply seeks to push things down the pipe and put a sticking plaster over what remains a gaping hole.”


CDOs And The Mortgage Market

Collateralized debt obligations (CDOs) are a type of structured credit product in the world of asset-backed securities. The purpose of these products is to create tiered cash flows from mortgages and other debt obligations that ultimately make the entire cost of lending cheaper for the aggregate economy. This happens when the original money lenders give out loans based on less stringent loan requirements. The idea is that if they can break up the pool of debt repayments into streams of investments with different cash flows, there will be a larger group of investors who will be willing to buy in. (For more on why mortgages are sold this way, see Behind The Scenes Of Your Mortgage.)

TUTORIALS: Mortgage Basics

For example, by splitting a pool of bonds or any variation of different loans and credit-based assets that mature in 10 years into multiple classes of securities that mature in one, three, five and 10 years, more investors with different investment horizons will be interested in investing. In this article, we’ll go over CDOs and how they function in the financial markets.

For simplicity, this article will focus mostly on mortgages, but CDOs do not solely involve mortgage cash flows. The underlying cash flows in these structures can be comprised of credit receivables, corporate bonds, lines of credit, and almost any debt and instruments. For example, CDOs are similar to the term “subprime“, which generally pertains to mortgages, although there are many equivalents in auto loans, credit lines and credit card receivables that are higher risk.

How do CDOs work?
Initially, all the cash flows from a CDO’s collection of assets are pooled together. This pool of payments is separated into rated tranches. Each tranche also has a perceived (or stated) debt rating to it. The highest end of the credit spectrum is usually the ‘AAA‘ rated senior tranche. The middle tranches are generally referred to as mezzanine tranches and generally carry ‘AA’ to ‘BB’ ratings and the lowest junk or unrated tranches are called the equity tranches. Each specific rating determines how much principal and interest each tranche receives. (Keep reading about tranches in Profit From Mortgage Debt With MBS and What is a tranche?)

The ‘AAA’-rated senior tranche is generally the first to absorb cash flows and the last to absorb mortgage defaults or missed payments. As such, it has the most predictable cash flow and is usually deemed to carry the lowest risk. On the other hand, the lowest rated tranches usually only receive principal and interest payments after all other tranches are paid. Furthermore they are also first in line to absorb defaults and late payments. Depending on how spread out the entire CDO structure is and depending on what the loan composition is, the equity tranche can generally become the “toxic waste” portion of the issue.

Note: This is the most basic model of how CDOs are structured. CDOs can literally be structured in almost any manner, so CDO investors can’t presume a steady cookie-cutter breakdown. Most CDOs will involve mortgages, although there are many other cash flows from corporate debt or auto receivables that can be included in a CDO structure.

Who Buys CDOs?
Generally speaking, it is rare for John Q. Public to directly own a CDO. Insurance companies, banks, pension funds, investment managers, investment banks and hedge funds are the typical buyers. These institutions look to outperform Treasury yields, and will take what they hope is appropriate risk to outperform Treasury returns. Added risk yields higher returns when the payment environment is normal and when the economy is normal or strong. When things slow or when defaults rise, the flip side is obvious and greater losses occur.

Asset Composition Complications
To make matters a bit more complicated, CDOs can be made up of a collection of prime loans, near prime loans (called Alt.-A loans), risky subprime loans or some combination of the above. These are terms that usually pertain to the mortgage structures. This is because mortgage structures and derivatives related to mortgages have been the most common form of underlying cash flow and assets behind CDOs. (To learn more about the subprime market and its meltdown, see our Subprime Mortgage Meltdown feature.)

If a buyer of a CDO thinks the underlying credit risk is investment grade and the firm is willing to settle for only a slightly higher yield than a Treasury, the issuer would be under more scrutiny if it turns out that the underlying credit is much riskier than the yield would dictate. This surfaced as one of the hidden risks in more complicated CDO structures. The most simple explanation behind this, regardless of a CDO’s structure in mortgage, credit card, auto loans, or even corporate debt, would surround the fact that loans have been made and credit has been extended to borrowers that weren’t as prime as the lenders thought.

Other Complications
Other than asset composition, other factors can cause CDOs to be more complicated. For starters, some structures use leverage and credit derivatives that can trick even the senior tranche out of being deemed safe. These structures can become synthetic CDOs that are backed merely by derivatives and credit default swaps made between lenders and in the derivative markets. Many CDOs get structured such that the underlying collateral is cash flows from other CDOs, and these become leveraged structures. This increases the level of risk because the analysis of the underlying collateral (the loans) may not yield anything other than basic information found in the prospectus. Care must be taken regarding how these CDOs are structured, because if enough debt defaults or debts are prepaid too quickly, the payment structure on the prospective cash flows will not hold and the some tranche holders will not receive their designated cash flows. Adding leverage to the equation will magnify any and all effects if an incorrect assumption is made.

The simplest CDO is a ‘single structure CDO’. These pose less risk because they are usually based solely on one group of underlying loans. It makes the analysis straightforward because it is easy to determine what the cash flows and defaults look like.

Are CDOs Justified, or Funny Money?
As mentioned before, the existence of these debt obligations is to make the aggregate loaning process cheaper to the economy. The other reason is that there is a willing market of investors who are willing to buy tranches or cash flows in what they believe will yield a higher return to their fixed income and credit portfolios than Treasury bills and notes with the same implied maturity schedule.

Unfortunately, there can be a huge discrepancy between perceived risks and actual risks in investing. Many buyers of this product are complacent after purchasing the structures enough times to believe they will always hold up and everything will perform as expected. But when the credit blow-ups happen, there is very little recourse. If credit losses choke off borrowing and you are one of the top 10 largest buyers of the more toxic structures out there, then you face a large dilemma when you have to get out or pare down. In extreme cases, some buyers face the “NO BID” scenario, in which there is no buyer and calculating a value is impossible. This creates major problems for regulated and reporting financial institutions. This aspect pertains to any CDO regardless of whether the underlying cash flows come from mortgages, corporate debt, or any form of consumer loan structure.

Will CDOs Ever Disappear?
Regardless of what occurs in the economy, CDOs are likely to exist in some form or fashion, because the alternative can be problematic. If loans cannot be carved up into tranches the end result will be tighter credit markets with higher borrowing rates.

This boils down to the notion that firms are able to sell different cash flow streams to different types of investors. So, if a cash flow stream cannot be customized to numerous types of investors, then the pool of end product buyers will naturally be far smaller. In effect, this will shrink the traditional group of buyers down to insurance companies and pension funds that have much longer-term outlooks than banks and other financial institutions that can only invest with a three- to five-year horizon.

The Bottom Line
As long as there is a pool of borrowers and lenders out there, you will find financial institutions that are willing to take risk on parts of the cash flows. Each new decade is likely to bring out new structured products, with new challenges for investors and the markets. (For more insight, read Why Are Mortgage Rates Increasing?)

[…] » State needs Payday Loan

Be happy; don’t worry

It’s a good thing that the leges didn’t pass the legislation to tighten the restrictions on Payday Loans during the 2014 Regular Session. It appears the state will need one.

Thanks to the leges ignoring the problem (Kicked can down road.) during the session, according to State Treasury John Kennedy, the current fiscal year that ends at Midnight on Monday is short by $134 Million to fully fund the budget. ( Story here.)

Bobby Jindal’s Liar-in-Chief, Kristy Nichols a.k.a. Commish of Administration says not to worry. Even though the fiscal year ends Monday, she won’t close the books until August 15. That’s plenty of time for the imaginary money to materialize.

Of course, if the Tooth Fairy doesn’t bring the money before August 15, Nichols can just delay closing the books further or borrow money from the fiscal year that begins on Tuesday. Ceveat: Don’t try this with paying your taxes due the state of Louisiana; you’ll probably be committing a felony.

There is still a chance that the state can take out a Payday Loan to fully fund the current year budget until the treasury is flush again. That’s what such loans are for, aren’t they?


“King of Subversive Bloggers” – James Gill


Stagnant puddle

are wasting the Federal Reserve’s largesse. The central bank has swollen the cash balances at financial institutions with quantitative easing, but has not even kept pace with nominal .

The numbers are stark. Since March 2008, the has increased its holdings of Treasury and federally backed mortgage securities from $700 billion to $4 trillion. To pay for these, it mostly printed money. More technically, it provided banks with $2.7 trillion of new reserves, according to St. Louis Fed data.

The banks didn’t use the funds to stimulate the economy. Commercial and industrial loans, the principal driver of sustainable expansion, have increased by about 12 per cent, to $1.7 trillion. Consumer debt has jumped 44 per cent, but accounts for a smaller piece of the pie. The banks could have afforded such slow paces of loan growth, well below the 16 per cent increase in nominal GDP, without any help from .

Rather, the Fed’s money-printing accounts for the extra cash on banks’ balance sheets. Their holdings of cash, according to Fed data, have increased by 779 per cent to $2.8 trillion over the past six years. For banks, that does not mean piles of crisp new bills, but the balances at the Fed do pay a 0.25 per cent interest rate. Meanwhile, banks now lend out just three-quarters of their deposits, compared with more than 100 percent in March 2008.

The central bank’s purchases may not have contributed directly to economic growth. Still, they have been good for bank profits, because the cash at the Fed earns a little interest income without needing any equity backing, according to the Basel technique of calculating capital strength. QE has also helped keep up financial asset prices, as the ample supply of ready cash probably encouraged banks to increase their investments in longer-term government and so-called agency securities by 63 per cent, to $1.8 trillion.

On the other hand, the Fed’s intervention has not been the inflationary disaster feared by monetarist economists. Funds kept in the central bank’s isolation ward do not infect the economy with wage and price increases.

If the Fed wants banks to push money out into the real economy, it should stop paying them for cash deposits. Instead, it could start charging. A negative 0.5 per cent interest rate on reserves might encourage lending. It might also stimulate higher inflation.


An Essential A-Z On Establishing Essential Issues Of Payday Loans …

An Essential A-Z On Establishing Essential Issues Of Payday Loans Online Uk

April 8, 2014 6:31 pm

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But it has this productive side to it that it funnels capital to where it’s needed. Youíve go access to tons of men who still work on shoes. Still, applying for 3 month loans requires nothing to do with poor credit s borrower s background, as lenders for such loans do not go for credit check. An interesing sidenote, sources close to the situation have said that if Roehlisberger were to be charged in the matter, he could face anywhere from 18 months to four years in prison. With the best of intentions, come the worst repercussions. At every step of the way this has been met with strong resistance from Conservatives in the Treasury. The fees are a fraction of the $639 billion in assets that Lehman Brothers Holdings Inc LEHMQ. Poor credit payday loans will help you to easily overcome your financial problems.
If the borrowers do not own the eligibility, they are not able to procure the bucks. If you spend more than you earn on a regular basis, it is a bad practice. The allegations include aggressive collections, not disclosing annual percentage rates, and charging customers for products they did not buy. Corporations, unions, trade associations, interest groups and others cannot and should not be prohibited from spending money to support a candidate.

Posted in: Uncategorized Tagged: […]

Today's news on payday lending is welcome, but enforcement …

Image Payday-lenders-300x221.png

The campaign to tackle the payday lending sector has been gifted another small victory today as the Department for Business, Industry, and Skills publishes a report calling for more focussed regulatory attention to the sector.

Today’s publication draws on several recommendations the governmnent and Financial Conduct Authority should carry out, including:

– Limit the number of times that payday loans can be rolled over to just one;

– Introduce stronger constraints on the use of Continuous Payment Authorities to stop lenders raiding the bank accounts of people in financial difficulties; and

– Require payday lenders to enter details of their loans on a real-time database to prevent lenders from making multiple loans and continually refinancing existing debt.

These are to sit alongside the recent call by the Treasury to put a cap on the total cost at which a payday lender can charge into legislation.

However the criticism here is that with exception of the cost of credit, all of these issues that BIS are calling for focus on have been consistently overlooked by regulators since campaigners started to raise attention of the payday industry. Our concern is with the new regulator: will these issues be overlooked again?

Checking a borrower’s affordability, not misusing the continuous payment authority, and rules on advertising have been obliged of payday lenders since the OFT began regulating consumer credit. The problem was not lack of rules, but lack of enforcement. We need to be certain that regulators do their jobs properly.

We only have to look abroad to see where even with regulations in place payday lending can still flourish.

In Ohio, USA, a great victory for campaigners against irresponsible lending occurred in 2008 when enough signatures were gathered to win a referendum that capped the costs at which payday lenders could charge.

A ballotpedia page reads:

“The Ohio Payday Lender Interest Rate Cap Act, also known as Issue 5, was on the November 4, 2008 ballot in Ohio as a veto referendum, where it was approved. This statute puts a cap on interest rate payday lenders can charge at 28 per cent.”

In Gary Rivlin’s excellent book Broke, documenting the early rise of the poverty industry, he catches up with Allan Jones, one of the first and well known payday lenders in the US. Despite working out that he made around $10,000 an hour in 2008, he was fuming at the prospect of losing more from the Ohio vote.

He had already shut down forty of his ninety four stores there, which represented around $720,000 of his potential profits. But don’t sound your tiny violin too loudly just yet.

As one recent report by Sheryl Harris, a respected consumer journalist in Cleveland, put it:

“For the last five years, payday lenders have simply continued doing business as usual in Ohio without interference from regulators.”

The notion that, as reported “legislators had some sort of unspoken understanding that payday lenders would simply continue to issue payday loans: two-week loans that carry interest rates of 391 percent or higher” – should remind us that the important thing is often not just legislation, but enforcement.

So while I am happy that there is now a cap on the cost of credit being discussed and decided in the UK, as well as a focus on rules and regulations of the payday lending industry by BIS, we still have reason for caution.


Is The Leveraged Loan Market Signaling Trouble Ahead?


Seal of the United States Office of the Comptroller of the Currency, part of the Department of the Treasury. The design is the same as the Treasury seal with a Comptroller of the Currency inscription. (Photo credit: Wikipedia)

Depending on your point of view the leveraged loan market is either the fast track for yield hounds or a slippery slope that’s getting a lot muddier.

Actually, it’s both.

Here’s why investors are falling over themselves buying up these relatively high yielding investments and how their grab for yield could cause the loan market to fall on its face.

Leveraged loans are loans taken out by less than investment grade companies. Generally, these loans result in a substantial increase in the borrower’s leverage ratio.

According to the Office of the Comptroller of the Currency “industry benchmarks include a twofold increase in the borrower’s liabilities, resulting in a balance sheet leverage ratio (total liabilities/total assets) higher than 50 percent, or an increase in the balance sheet leverage ratio more than 75 percent.”

The OCC broadly considers a leveraged loan to be a transaction where the borrower’s post-financing leverage, when measured by debt-to-assets, debt-to equity, cash flow-to-total debt, or other such standards unique to particular industries, significantly exceeds industry norms for leverage.

Loans issued by banks and other financial intermediaries are used to fund mergers and acquisitions, equity buyouts, refinancing, recapitalization, expansions and to increase shareholder returns and monetize perceived “enterprise value” or other intangibles.

Borrowers pay a floating rate, usually priced off LIBOR, and loans are collateralized by first and second liens on company assets.

That’s good news for investors in leveraged loans. If interest rates rise investors yields rise too. If there are defaults, investors are first or second in the collateral selloff line.

But the grab for yield in the interminably long low interest rate environment engineered by the Federal Reserve is flipping the leveraged loan market on its head once again.

So far this year, up to November 14th, $548 billion worth of leveraged loans have been issued, which is more than the $535.2 billion issued in 2007, the previous peak year.

That’s not alarming. What is alarming is that more than half of this year’s issuance has been “covenant-lite.” That’s more than double the 2007 peak year level.

Covenant-lite, or cov-lite, refers to the lack of traditional covenants embedded in loan contracts that lenders usually demand. Because the demand for higher yielding investments is so strong, borrowers aren’t giving lenders and investors protections such as limiting how much total borrowing or leverage they will take on. Borrowers aren’t letting lenders trigger protective action if cash flows weaken, or if other important metrics of corporate balance sheet health are breached; and in many cases aren’t even letting lenders dig into their financials.

It’s become a giant buyer-beware bazaar.

And about that collateral. Lenders are increasingly issuing loans backed by second liens.

Demand for second lien leveraged loans is so high 46% of transactions this year have been issued with relaxed covenants and fewer guarantee provisions. That’s triple 2012 percentage of second-lien cov-lite leveraged loans. In 2007 only 14% of all leveraged loan volume was second lien loans.

So far investors have been happy with their leveraged loans and borrowers have been in serious party mode.

What investors need to do is keep an eye on rising interest rates. While they benefit by increased returns if rates rise, borrowers could come under intense pressure to fund loan payments or refinance outstanding debt in a rising rate environment.

As far as collateral, investors are better off in loans where borrowers have higher levels of unsecured debt. High levels of unsecured debt leaves more collateral for first and second lien protected lenders.

It’s not too late to invest in leveraged loans, but some ominous shadows are growing.

To be safe investors should only invest in the most liquid leveraged loan vehicles where they can exit with relative ease should price declines eclipse rising coupons.


Payday loans cap: does it fit and what does it mean for borrowers …

Image Payday-loans-composite-006.jpg

Payday loan firms in the UK face a cap in lending, as they do in the US, Australia and much of Europe. Photograph:

The government has announced that high cost payday lenders will face a cap on how much they can charge borrowers. A cap is already in place in many parts of Europe, in Australia and in many US states.

What is a payday loan?

It is a short-term loan, usually of up to £1,000, which can be arranged over a matter of days or weeks. The loans are offered online by companies such as Wonga and QuickQuid and on the high street by firms including The Money Shop and Cash Converters.

Interest rates on the loans are high – APRs are usually more than 1,000% and some of the best-known firms charge more than 5,000%. Although lenders say those rates are not a fair reflection of the cost as they are skewed by the short lending period, debt campaigners say borrowing can quickly spiral as loans are extended – or rolled over – and charges mount up.

What would a cap do?

It would limit how much a lender could charge for a loan, so if a borrower was unable to repay their debt on time, the amount they owed would stop growing at a set point.

The details of the cap are so far unclear, but the chancellor, George Osborne, has said it “will not just be an interest rate cap”, but a cap on the cost of credit. The Finanical Conduct Authority (FCA) will be responsible for deciding what level it will be set at.

There are precedents in other countries which the FCA may follow. For example, in Australia payday lenders are restricted to charging up to 20% upfront and up to 4% a month. On £100 borrowed over 30 days that would limit charges to £24. In the UK, £100 borrowed from Wonga costs £137.15 and interest is added at 1% a day.

Wasn’t a cap ruled out?

The government previously said it wouldn’t cap the cost of payday loans, although the banking bill did give the FCA the power to decide a cap was necessary and introduce it once it takes on regulation of the credit sector in April 2014.

Recently, the FCA outlined its plans for its stewardship of payday lenders, including new rules limiting the number of times a loan could be rolled over and the number of times a lender could attempt to take cash from a borrower’s bank account. It said at the time that a price cap was “a very intrusive proposition” and it would need to do further research once it started regulating firms so it could understand the full implications.

Why have things changed?

Good question. The government says there is now “growing evidence” internationally to support the move, but it isn’t clear why the decision was made so suddenly. There has been some powerful lobbying by MPs including Stella Creasy and Paul Blomfield, and debt charities including Citizens Advice, who have all called for a cap among a series of other measures.

Is this a good thing?

Campaigners have welcomed the move – in principle. They say the devil is in the detail, and that customers need more choice. Citizens Advice’s chief executive, Gillian Guy, said: “To truly tackle the cost of payday loans there needs to be more competition in the payday loan industry … The government needs to put pressure on traditional lenders to introduce responsible short-term micro-loans.”

Blomfield said: “As well as capping the cost of credit, the government needd to address the issues of affordability checks, rollovers, use of continuous payment authorities, support for debt advice and regulation of advertising.”

Are there any downsides?

There could be. In September the consumer minister, Jo Swinson, warned that a cap could end in “unintended consequences” with people forced to take unregulated alternatives as lenders pulled out of the market.

In its consultation on regulation, the FCA referred to research by the Personal Finance Research Centre at the University of Bristol as “ambiguous” about a cap, “on the one hand [it suggested] possible improved lending criteria and risk assessments. On the other, prices may drift towards a cap, which could lead to prices increasing or lead to a significant reduction in lenders exercising forbearance.”

The research also warned that a cap could result in less transparent pricing structures, making it more difficult for consumers to compare products and lenders based on prices, and lenders taking a harder line on debt collection.

Will the cap just apply to payday loans?

Yes, according to the Treasury, although it said the FCA would be able to extend it to other types of lending if necessary. This means unauthorised overdraft charges and other forms of unsecured borrowing would not be covered by the cap.

When will it happen?

The banking reform bill currently going through parliament will force the FCA to bring in a cap, and that is due to complete by January 2014. The Treasury said that once work had been done to establish the level of a cap it expected it to come into force by the start of 2015.


U.S. Federal Housing Administration to tap $1.7 bln in taxpayer funds

* FHA needs the cash to maintain required capital cushion

* Shortfall stems from loans backed from 2007 to 2009

* Republicans say FHA was irresponsible propping up market

* White House predicted $943 million draw in April

* Obama administration officials see finances improving

By Margaret Chadbourn

WASHINGTON, Sept 27 (Reuters) – The U.S. Federal Housing Administration said on Friday it will draw $1.7 billion in cash from the U.S. Treasury to help cover losses from troubled loans, marking the first time in its 79-year history that it has needed aid.

The agency, which offers mortgage lenders guarantees against homeowner defaults, told Congress it does not have enough cash to cover projected losses on the loans it backs. It said it needs the subsidy to shore up its insurance fund to maintain a required capital cushion.

While the FHA had been expected to draw from the Treasury, the cash infusion, which Republicans have dubbed a bailout, will heighten the political tension over the government’s pervasive role in the mortgage market.

Taxpayers have already propped up mortgage finance giants Fannie Mae and Freddie Mac to the tune of $187.5 billion, although those government-controlled companies are now profitable and will have returned $146 billion in dividends to the Treasury by the end of the month.

Including Fannie Mae and Freddie Mac, federal housing agencies support about nine in 10 new U.S. mortgages.

The calculations indicating the FHA will need a draw are based on data from December 2012 that were used to craft President Barack Obama’s budget proposal.

FHA Commissioner Carol Galante said the agency determined it needed cash based on loan performance assumptions made in December that did not capture recent improvements.

“In the next few months we expect updated data and economic forecasts to reflect what we already know to be true – the health of the (FHA insurance) fund has improved significantly,” she told lawmakers in a letter.

The cash infusion marks what could be considered a book end to the 2007-2009 financial crisis, which was sparked by a burst U.S. housing bubble that sent home prices tumbling.

White House officials projected in April that the FHA would face a shortfall of $943 million in the fiscal year that is drawing to a close, and some analysts predicted an improving housing market might allow it to avoid tapping what is essentially a credit line it has with Treasury.

The FHA said it has more than $30 billion in cash and investments on hand to pay potential claims, but that it does not have enough to meet a legally required 2 percent capital ratio, which is a measure of its ability to withstand losses.

The FHA has not met its capital ratio since 2009, but the ratio only sank below zero this budget year.

“Although this one-time transfer of funds from the Treasury is legally necessary, it’s important to note that FHA is far from bankrupt,” said Representative Maxine Waters, a California Democratic who supports programs that help low-income borrowers.

Since the cash draw from Treasury will not be disbursed by the FHA, it will not impact how quickly the government runs out of money to pay its bills under the nation’s $16.7 trillion debt ceiling. In addition, the Treasury has the authority to take the $1.7 billion back once the FHA rebuilds its reserves.


The FHA said in April that it needed to see if an increase in insurance premiums on the loans it backs and rising home values would close its funding gap.

But a spike in interest rates reduced the volume of new FHA-backed loans, tempering the hoped-for increase in premium-related income and worsening its projected shortfall.

Senior Obama administration officials said nearly $70 billion in losses were due to loans issued between 2007 and 2009 as the U.S. housing bust deepened, and that they expected the agency’s finances to improve in coming months.

Metrics of the current portfolio show that the money the agency is recovering on foreclosed properties is improving and early payment defaults are down dramatically.

“It is estimated that the improvement in recovery rates alone is worth more than $5 billion … which would far exceed the amount of the mandatory appropriation,” Galante said in her letter.

After an independent audit in November found that its insurance fund could face losses as high as $16.3 billion, the FHA raised the amount it charges borrowers to insure mortgages against default and tightened underwriting. The changes, coupled with rising home prices, helped shrink the projected gap.

Loans originated in the past few years have been performing better. The number of loans seriously delinquent, or 90 days past due, at the end of July was 15 percent below the level of a year earlier and the lowest point in almost three years.

“From a practical perspective the only thing a FHA draw would increase is the political rhetoric surrounding the issue, and our sense remains that FHA reform is unlikely to become law in the medium-term,” said Isaac Boltansky, a policy analyst with Compass Point Research and Trading.


The FHA has said its cash needs were mainly driven by losses from reverse mortgages, which allow homeowners age 62 or older to withdraw equity and repay it only when their homes are sold. The agency, which is expected to spend $2.8 billion this year insuring reverse mortgages, backs 90 percent of such loans.

It has already announced new guidelines for potential reverse mortgage borrowers, including lower limits on the amount seniors can withdraw, higher mortgage insurance fees and tougher vetting of applicants. Those changes, however, do not go into effect until Tuesday.

Republicans have argued the FHA needs to take more aggressive action to protect taxpayers, including reducing maximum loan limits and raising minimum down payments.

The Obama administration contends some of those steps would undermine the agency’s mission to provide credit to first-time home buyers and needy communities.

The FHA has played a critical role supporting the housing market by insuring mortgages for borrowers who make down payments of as little as 3.5 percent. The FHA insures about $1.1 trillion in mortgages and now backs about one third of all new loans used to purchase homes, up from about 5 percent in 2006.