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Saturday, March 28, 2009

Lisa Bachelor The Observer, Sunday 29 June 2008

Offshore money-lending companies charging interest rates in excess of 2,000 per cent are targeting cash-strapped borrowers in the UK via the internet. They are offering 'payday loans' that provide desperate borrowers with up to £1,000 over 31 days, which then has to be paid back with hundreds of pounds added on in interest.

Some lenders come from the US, where payday loans have become big business since the credit crunch. One, Pounds Till Payday, operates from Malta and its website declares annual interest rates of 2,225 per cent.

'We are concerned that although payday loans have been on the UK high street for some time they are now springing up in increasing numbers online,' says Peter Tutton, debt policy adviser at Citizens Advice. 'Until recently people on a low income could still access loans from mainstream lenders but now the banks have closed their doors to higher risk customers.'

The Archbishop of Canterbury, Rowan Williams, recently opened a House of Lords debate on families and debt and called for 'an urgent review' of the rates charged by doorstep lenders.

Debt On Our Doorstep, a coalition of debt charities and credit unions, is so concerned about payday loans that it has tabled a motion in Parliament calling for an investigation into them.

The loans are targeted at desperate borrowers who cannot get money elsewhere. No credit checks are carried out and all that is required in most cases to get the money is bank account or debit card details. The money is paid into the borrower's account the same day and is debited straight from the account - with charges - 31 days later.

This no-questions-asked approach to lending is irresponsible, say the debt charities, tempting people to borrow money...#65279; with no prospect of repaying.

'We would suggest that not bothering to run any credit checks or verify income constitutes irresponsible lending and would like the Office of Fair Trading to look at whether these companies should have their credit licences revoked,' says Damon Gibbons, chair of Debt On Our Doorstep.

Citizens Advice came across one case of a single parent with a 10-year-old child who had multiple debts of £8,000. Her weekly income when she came to the CAB consisted of £83 statutory sick pay and £200 in state benefits. One of her debts was a payday loan, taken out online, with an APR of 1,355 per cent.

'Her mental health was deteriorating and her financial situation was becoming increasingly impossible,' said a Citizens Advice spokesman.

The Observer talked to an online saleswoman - 'Danielle' - at Pounds Till Payday and was told that for £100 borrowed the company would charge £29.98. When we asked if there were any late payment charges if we did not have the funds to pay within 31 days, we were told that a £59 charge would be added to the bill, which is not advertised anywhere on the website.

Other operators include Payday Express, which charges £20 for each £100 borrowed, and Month End Money, which charges £25 per £100.

Debt advisers are worried that the squeeze on credit will lead to a similar situation as in the US, where payday loan companies are commonplace. In some parts of Cleveland, the city in Ohio hardest hit by the sub-prime mortgage crisis, all the conventional banks have been replaced by payday lenders.

Payday loans are so insidious that they have been banned in a handful of states; in New York, annualised rates of interest offered by any lender must not exceed 25 per cent. But even in New York the number of so-called 'check-cashing shops' is on the rise.

The biggest payday loans company, the MoneyShop, owned by US company Dollar Financial, has 250 stores in the UK and recorded 55 per cent lending growth in the last quarter of last year.

The loans are advertised heavily on the internet and are even offered via big-name financial comparison websites Moneysupermarket.com and Moneyexpert.com. Sean Gardner, chief executive of Moneyexpert.com, says: 'Payday loans have their place, but people have to be very clear about what they are signing up for. There are rightly serious criticisms about the product and they should come with a health warning.'

Labels: payday loan

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About Payday loan

A payday loan (also called a paycheck advance or payday advance) is a small, short-term loan that is intended to cover a borrower's expenses until his or her next payday. The loans are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card (see cash advance). Legislation regarding payday loans varies widely between different countries and, within the USA, between different states.

Some jurisdictions impose strict usury limits, limiting the nominal annual percentage rate (APR) that any lender, including payday lenders, can charge; some outlaw payday lending entirely; and some have very few restrictions on payday lenders. Due to the extremely short-term nature of payday loans, the difference between APR and effective annual rate (EAR) can be substantial, because EAR takes compounding into account. For a $15 charge on a $100 2-week payday loan, the APR is 26 × 15% = 390% but the EAR is 1.1526 - 1 × 100% = 3686%. Careful reporting of whether EAR or APR is quoted is necessary to make meaningful comparisons

Labels: payday loan

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Why Choose 24 Hour PayDay Loan

Quick - same day cash advance (within 24 hours)

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Faxing is not always required - with QuickSilver and with Payday UK the whole application process is done online (their "Express" service)

No credit checks are done - which means a poor credit history is not a problem (n.b. Payday UK do conduct a credit check as part of their "Express" service)

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Labels: payday loan

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wonga
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Short term unsecured personal credit - not strictly a payday loan service - an alternative
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Small unsecured loans rather than a payday loan
Apply immediately by phone - no quibble refund policy on calls made
All application details done by phone - no paperwork, and full confidentiality

Labels: payday loan

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