Fair Finance for those on benefits? "Typical APR 52.94%"

"Employed or receiving Benefits - Isn't it about time you got a fair deal". The other weekend I received this "flyer" through my letter box.  Double click on the scans left and right to bring up details.

At first I thought that this was just another form of Moneyshop or Payday 1330% APR con job targeting the poor and vulnerable.

I then had a proper look at the leaflet and saw that a typical APR of 52%.   Is this a "fair" interest rate.  Especially if you existed on benefits or low wages? 

Fair Finance is a Social enterprise which has some pretty respectable partners and backers. Their aim is to put "loan sharks and predatory lenders" out of business. Which is very laudable. 

Of course 52% is far, far less than the legal loan extortionists charge never mind the illegal loan sharks.  Yet I see that a local credit union offers similar (I admit that a credit union has a different set up) loans at only 19.6% APR.  Under Fair Finance you would pay £624 back on a £500 loan over 12 months while the credit union will only charge £567?  A big difference if you are on benefits or low pay? Should we not be backing credit unions?

Putting Loan Sharks behind Bars

I came across this really excellent leaflet from Tower Hamlets Council Trading Standards while trying to put together a “financial inclusion” pack for all new residents.

Quite rightly progressives of all shapes and sizes get very “full on” about the serious issues of child poverty, crime and social exclusion. The community destroying and leaching activities of unauthorised loan sharks who prey on the poor and desperate is sometimes overlooked. We have comptletely vile gangsters who terrorise the vulnerable for debt repayment in many inner city estates and who do deserve long imprisonment for their crimes.

I am pleased that the local Council is trying to do something about them. Yes, send ‘em down, every one of them! But do not forget the far more widespread and “legal” culprits - the "door to door" collectors and the high street money shops.

They may not break your legs but they will charge up to 1845% pa (I say again if you think you have misread this – 1845% per annum! - Payday loans website - can you believe it this has gone up from January 2008 when it was “only” 1330% pa) for credit. The current Bank of England bank rate is 1.5%.

How can we tackle poverty when our very poorest estates pay this sort of money for credit? Credit unions and good consumer advice are key but the Government needs to outlaw such usury. There is no excuse for such interest rates. There should be a maximum rate for all personal loans.

Curse of Labourhome – Why Barack Obama lost in New Hampshire

Now the dust has settled, it is time to explain what happened. Last week I posted about Money Shop and Payday UK who have high street stores which target vulnerable “customers” with unsecured short term loans and charging up to 1330% APR.

I also posted these items on Labourhome and got some useful information. Labourhome commentator “Rwendland” pointed out that even in the land of the free; many US states limit the amount of interest that can be charged on loans. They are even called usury laws. Other countries also have such laws. In Canada they have a legal limit of 60%.

So there are precedences to ban this vile practice.

“Redrooster” pointed out that there is a UK website called “debt-on-our-doorstep”, this is a bit out of date but it provides a lot of useful information about how excessive interest rates can be restricted by the state.

Finally, Rwendland also posted on Saturday a comment that pointed out that the Democratic front runner at the time, Barack Obama, had actually voted against a poplar congress resolution to “To limit the amount of interest that can be charged on any extension of credit to 30 percent” while his rival Hilary Clinton had voted in favour of it.

Of course, once this disclosure had filtered through across the pond – Obama was history. Such is the power of “Labourhome”.

1330% APR - Tackling the Loan Parasites (and Sharks)

I’ve been thinking of yesterday’s post and about what should be done about the likes of “Money Shop” and the rest (Payday UK “only” charge 1330% interest for a 30 day loan – please click on the link to check I am not making this figure up. It is unbelievable. Apparently they have 100,000 UK customers) who make such excessive interest charges.

Firstly, why not legislate against it. Usury use to be illegal for centuries. There also use to be numerous Bank of England regulated credit controls which were abolished by Thatcher?

This is not just “Old Labour” but actually surely it is the role of the state to legislate against such blatant exploitation of vulnerable people? These interest rates are just parasitical. We have after all made other justifiable interventions into the “market” such as the minimum wage and now personal pension accounts.

Of course there must be better education in schools about personal finance and what high interest rates really mean. Maybe also we should think whether the government could open an account for everyone in a community credit union as they did recently for kids?

There is an argument that if you restrict the “official” interest rate you may encourage people to use loan sharks. According to recent research 165,000 Brits already use loan sharks. So that argument is pretty poor. You are more likely to need a loan shark if you have to spend so much of a limited income on “over the counter” interest. Also these mind boggling rates almost make loan sharks respectable. It is interesting that the BBC link above mentions that Tower Hamlets loan sharks are being targeted by special trading standard teams. We have a bit of a history of this sort of thing.

If there is (rightly in my view) a fuss about the “unfair” charges paid to proper banks by (dare I say mostly “middle class”) bank customers and even a legal test case by the Office of Fair Trading, then why can’t the government take action to restrict the interests rate paid by the mostly very poor, “working class”?

Apart from being a point of principal and social justice - can you imagine the Tories supporting such a move? What would their paymasters, such as the pro-unfettered market "Fidelity Fund managers" say!

A decisive move in this direction would let in some clear red water... Gordon?

An offer the desperate cannot refuse.

Walking along the Roman Road, East London before Christmas I found the local “Money Shop” had a wonderful special offer for customers – “pay only £5 for a £95 loan” at only 86.7% typical APR. So that’s okay then. An absolute bargain then with inflation at 4.8%?

Today I walked past the “shop” and it had no bill boards out on the pavement but it was announcing its “half price sale” in the windows. “ Pay only £7 (usually £14) for a £93 loan with our Half Price Sale. 141.9% APR typical. The total amount payable of £100 is repaid in 30 days".

Hmmm? Even the ubiquitous Barclaycard has credit available at 14.9% APR. Admittedly many of the Money Shop customers would be refused a credit card.

The Money Shop” website states that they have 250 stores in the country. You can also click on their TV adverts! This usury is not paying their staff great wages. The same site advertises for customer service reps for £14,000 (and 5% bonus) while the shop managers can get up to £22, 000 with “unlimited bonuses”! Oh, they are also “investors in people”.

Only a couple of hundred yards down the road is a credit union office, where you can get loans at only 12.68%. If you repay it over 12 months it could only cost 6.6%.

The money shop is a bit coy about who owns it. Hopefully my pension fund has no investment in it (anyone know?).