Tagged: payday loans

Hidden debt epidemic from pay day loans hits North East teens

Desperate North teens are saddling themselves with payday loan debt with the help of their parents, it is claimed today.

A shock report by Action For Children has unearthed “worrying levels of borrowing” in the region among young people aged from 12 to 18.

Research by the charity reveals one in eight borrowed money from companies and an alarming 41% said they had used a payday loan company.

While it is illegal for anyone aged under 18 to get credit, Newcastle’s Citizens Advice Bureau (CAB) said staff had dealt with cases where parents or guardians had sought payday loans on a youngster’s behalf.

And bureau Chief Executive Shona Alexander said the hidden debt epidemic is leading to relationship breakdown within families as teenagers – the age group most likely to be on a zero hours contract – struggle to repay relatives.

It is a serious problem,” said Shona, who called for the credit age to be raised to 25. “We know that young people have forged the signatures of adults and that they have pressured parents or grandparents into getting a loan for them or being their guarantor.

“When they can’t pay them back, the adult’s credit rating is seriously damaged and then it is not just a debt problem but a relationship problem.

“Young people don’t know how to manage money. Something needs to be done.”

Frontline staff see young people seeking debt money to replace household goods, set up their first home or keep up with pals. High street lenders, including store cards, were used by a third (38%) of those able to get credit, the survey said.

Action For Children said the Government must fund more debt education to stop another generation of young people from a cycle of debt and bad credit.

It comes as the charity publishes its Paying The Price report ahead of Christmas amid fears the expensive festive season could be a trigger.

The report unveils how that 55% of children have not received any financial education.

And of those who had, 87% learnt from parents or carers while just 27% learnt about money at school.

The CAB added its Stockton branch had run a successful service helping to educate young people on the dangers of debt which had now disappeared because of public sector cutbacks.

Shona added aggressive marketing campaigns from payday loan companies were attractive to young people and credit firms were likely to change tack after reforms in 2015 to sell more guarantor-style short-term loans.

“Young people don’t understand interest rates and they don’t get into the regular habit of saving,” she said. “We have really got to start education at primary school age and keep that going. Too much of the debt education that we have is short-term.”

John Egan, Action for Children’s operational director of children’s services, said by becoming bogged down with debt from a young age, countless young people from the region could have their future marred by unemployment and mental health problems as a result.

He said: “High interest products and companies are now far too easy for young people to access.

“Some young people are less likely to have the financial skills they need, they may have to live on a low income or are not in education. They are also not able to learn about money at home or at school where other young people do. Add in baffling financial jargon and a lack of knowledge will dramatically create a vicious circle of debt, increasing the risk of mental health problems and unemployment.

“We cannot afford to let children pay this price because of a simple lack of financial education. They must be equipped with the necessary skills to make informed money decisions to give them a chance of a happy future.”

Source –  Middlesbrough Evening Chronicle,  14 Dec 2014

Labour say they will end sanctions targets

Rachel Reeves ,the shadow Secretary of State for Work and Pensions and Stephen Timms, shadow Employment Minister have said that if labour is elected next year they will end targets for sanctions. But how much difference would this actually make?

According to Reeves and Timms:

“. . . we urgently need to get a grip on the delays and administrative errors that can mean the difference between eating and not eating for people trying to make a few pounds last for days.

As MPs we have had to refer people to food banks because of problems like this. In one case a mother who worked three jobs as a cleaner but ended up living on payday loans because she had been forced to wait months on end to get the tax credits. We should take this kind of system failure as seriously as we do a delay to an important medical appointment or a failure to respond adequately to a crime report.

“We also need to ensure that sanctions are fair and proportionate, and based on transparent procedures and appropriate safeguards. Sanctions have been part of our social security system since its foundation, and the principle of mutual obligation and putting conditions on benefit claims were integral to the progressive labour market policies of the last Labour government, from the first New Deals to the Future Jobs Fund.

“We in the Labour movement have always believed that the right to work goes hand in hand with the responsibility to prepare for, look for, and accept reasonable offers of suitable work.

“That’s why we have pledged that there will be no targets for sanctions under a Labour government so that jobcentre staff are focused on helping people into work, not simply finding reasons to kick them off benefits. We will also ensure that rules and decisions around sanctions are fair and properly communicated, and that the system of hardship payments is working properly.”

But, without a change in the criteria for sanctions and a change in the attitude towards claimants of both politicians and the civil servants at the top of the DWP, how much difference would ending targets that are never explicitly stated in the first place actually make?

Let us know what you think.

You can read the full statement on the Labour List website.

Source –  Benefits & Work,  24 Nov 2014

http://www.benefitsandwork.co.uk/news/2948-labour-say-they-will-end-sanctions-targets

Payday Lenders Changes ‘could send borrowers to loansharks’

Changes to the payday loans market could drive desperate consumers straight into the arms of loan sharks, a North-East academic has warned.

A cap on the amount that payday lenders can charge customers has been announced by the Financial Conduct Authority.

But Professor Mark Davies, of Teesside University’s school of social sciences, business and law, fears the changes will enable loan sharks to strengthen their positions in local communities.

Prof Davies, who has carried out extensive research into the payday loans market and the needs of borrowers, believes the new measures are a positive move, but will not help all borrowers.

While this is definitely an improvement from a borrower’s perspective, there are a number of remaining issues,” he said.

“In particular, it has been speculated that many payday lenders will leave the market to set up elsewhere or change their business model.

“If legitimate payday lenders leave the industry, this will leave less choice to borrowers, with the possibility of loan sharks strengthening their positions in local communities.”

The changes by the FCA will see payday loan rates capped at 0.8 per cent per day of the amount borrowed. In total, no one will have to pay back more than twice what they borrowed, and there will be a £15 cap on default charges.

The FCA hopes the new regulations will deter people from seeking loans, but Professor Davies argues it is not that simple.

A person in financial desperation, as many of these people are, cannot simply resist a loan,” he said.

“What is needed is a mechanism for identifying and targeting these people at much earlier points, before the pain of irreversible debt mounts up.”

Professor Davies is currently leading a research project to find out more about the types of consumers who consider payday loans and the consequences it has on their lives.

He has gathered detailed accounts from a number of third sector organisations and has held focus groups with people who have taken out payday loans.

The new regulations are welcome but they will not help all borrowers,” he said. “Some will return to loan sharks.

 “Loan sharks have built up strong social connections and networks within local communities that make them more culturally acceptable than lenders such as credit unions.”
Source — Northern Echo, 17 Nov 2014

Plans to scrap emergency fund will leave crisis hit families with nowhere to turn

Families in crisis will have nowhere to turn when a £10m emergency fund for the region is axed within months, campaigners warn today.

The Children’s Society raises the alarm over Government plans to scrap ‘local welfare assistance schemes’ – seen as a last lifeline to stop vulnerable people falling into debt and destitution.

The cash – administered by local authorities – is helping an estimated 80,000 people across the North-East and North Yorkshire in this financial year, the organisation said.

Some are women fleeing domestic violence, who desperately need money quickly to buy an oven for their new home.

Other grants are given to parents so they can visit their sick child in hospital, or to struggling families when they face an emergency cost such as a broken boiler.

But the funding will be withdrawn from next April, under proposals put forward by the department for work and pensions (DWP) expected to be confirmed in the New Year.

Ministers say local councils can fund the schemes themselves – but those councils must themselves find billions of pounds of savings, amid huge cuts to their Whitehall grants.

Matthew Reed, The Children’s Society chief executive, said:

“This is a cut too far.

“At a time of increasing child poverty, high levels of problem debts, and cuts to support for families, it is more important than ever that local welfare assistance schemes are available to help families in crisis.

“Without these schemes, families will have to choose between going without basic essentials to keep their family safe and healthy – such as food or heating – and turning to high cost credit or payday loans, plunging them into a debt trap.”

Durham County Council – which will lose £407,270, if the plans go ahead – said it had not yet drawn up proposals to plug the gap.

Roger Goodes, head of policy, said:

“We are looking at how we might be able to continue to support people, should funding be withdrawn.

“Once the funding situation is confirmed, we would expect to develop detailed proposals which would be put to members of the council’s Cabinet for consideration.”

> Why didn’t he just say “no idea” ?

 Almost three-quarters of councils are planning to hack back their schemes – or end them completely – according to a recent Local Government Association survey.

But a DWP spokeswoman insisted it was not planning to end support, but giving councils greater freedom how to spend funds from Whitehall.

She said:

“This Government is giving councils more control because they understand best their local area’s needs. This is in contrast to the old centralised grant system that was poorly targeted.”

The estimate that almost 80,000 people in the region are currently receiving help is based on the average grant of £124.

Source –  Northern Echo,  07 Nov 2014

£20,000 fighting fund to kick loan sharks out of Jarrow

A drive to keep people in Jarrow out of the hands of loan sharks and payday lenders has been launched – thanks to a £20,000 Lotto grant.

The cash will help raise awareness of the town’s existing advice drop-in centre at Jarrow’s Grange Road Baptist Church.

The church currently plays host to The Bridges – Your Community Bank, the trading name of South Tyneside Credit Union.

The grant, from Big Local, part of the Big Lottery Fund, will help increase sessions at the church and encourage better money management in central Jarrow.

The two-year programme will also help people looking to escape the cycle of sky-high interest rate loans.

One key element will be the creation of four savings clubs in schools, nurseries and children’s centres, to teach youngsters about saving.

Last year the bank issued 989 loans, payable back within a year, and typically for between £800 and £1,000, and totalling around £845,800, at interest rates from 5.1 per cent APR and 43.8 per cent – far lower than any payday lender.

But bosses believe the partnership has the potential to encourage many more people to approach them for safe, well-planned and responsible financial support, and for loans which reflects their ability to repay.

Janette Wynn, manager of Bridges – Your Community Bank, said:

“This partnership is an important development in helping people to get away from using either payday lenders, or doorstep lenders.

“It will raise awareness to residents that credit unions are another alternative source of borrowing instead of using payday loans and door step lenders.

“It will help adults by offering loans at far lower interest rates than they may otherwise pay, and it will also encourage them towards more responsible borrowing.”

Anne Corrigan, project co-ordinator for Big Local in Central Jarrow, added:

“This will help people to access affordable loans, reducing the numbers reliant on pay day loans and loan sharks and ultimately improving the economic stability of the community.”

Loans are typically used for home improvements, holidays, Christmas expenses, buying a car, and debt consolidation.

More information is available from Bridges – Your Community Bank on 0191 454 7677 or by emailing info@bridgesycb.org.uk, or from Anne Corrigan on 0191 428 1144 or by emailing anne.corrigan@groundwork.org,uk

Source –  Shields Gazette,  31 Oct 2014

Lib Dems slammed for ‘hyprocisy’ after they come out against the bedroom tax

Liberal Democrats have been accused of “unbelievable hypocrisy” after they announced they want effectively to axe the bedroom tax.

The change of heart follows a vote at last year’s Liberal Democrat party conference when delegates backed a motion proposed by North East activist Julie Pörksen which condemned the policy for “discriminating against the most vulnerable in society”.

Mrs Pörksen, who is set to be the party’s candidate in Berwick, Northumberland, next year, welcomed the Lib Dem announcement, saying: “The whole premise behind the policy was flawed.”

But as recently as February, the party’s MPs failed to back calls led by a North East Labour MP to axe the bedroom tax.

Wansbeck MP Ian Lavery proposed legislation to end the policy, but just five Liberal Democrat out of 56 voted for it.

The recent u-turn came after a paper produced by the Department for Work and Pensions (DWP) – but published on the same day David Cameron conducted a high-profile Government reshuffle – highlighted the hardship caused by the policy.

Mr Lavery said: “I’m completely lost for words. Is it any wonder that the public question the honesty and integrity of politicians and the political parties?

“This is obscene electioneering from a party whose credibility has vanished. The Liberal Democrats supported the bedroom tax with equal passion as the Tories – it’s a matter of public record.

“They failed to support my 10 minute rule bill, which highlighted all the problems they now wish to raise.”

And Newcastle East’s Labour MP Nick Brown said: “It’s completely hypocritical. If they hadn’t supported the Tory government in the first place then this misery wouldn’t have been inflicted on public sector tenants.”

Known officially as the removal of the spare room subsidy, the ‘bedroom tax’ involves cutting housing benefit by 14% for many tenants in council or housing association properties if they are considered to have a spare bedroom, or by 25% if they have two or more spare bedrooms.

Officially, the goal was to encourage them to move into smaller properties.

But the DWP paper reveals that only 4.5% of households affected in the North East have managed to find a smaller council or housing association property to move into.

Others had simply been forced to pay the extra rent. The paper said: “57% of claimants reported cutting back on what they deemed household essentials and 35% on non-essentials in order to pay their shortfall.

“A quarter of claimants (26%) said they had borrowed money, mostly from family and friends (21% of all claimants); 3% had borrowed on a credit card and 3% taken payday loans.”

Despite this, only four out of ten households affected had managed to keep up with their rent – while the rest went into arrears.

The new Liberal Democrat policy is to cut benefits only for people who are actually offered a smaller home and refuse to move, which means the cut is simply axed for the overwhelming majority of people currently affected.

But despite being part of the Coalition government, it remains to be seen whether Liberal Democrats will succeed in actually changing Government policy.

Mrs Pörksen said: “Liberal Democrat ministers now need to persuade the Tories to agree with them and bring some humanity back into the welfare state.”

Source – Newcastle Evening Chronicle, 20 July 2014

 

Rap song released in tribute to Archbishop of Canterbury’s payday loan stance

A Rap song has been released in tribute to the Archbishop of Canterbury‘s warnings about payday loans.

We Need A Union On The Streets, by music producer Charles Bailey and featuring the rapper Question Musiq, was inspired by the former Bishop of Durham, the Most Rev Justin Welby‘s efforts to expand Britain’s network of credit unions.

The song tells the story of young people who get into debt because of payday loans and features the words of personal finance guru Martin Lewis in which he warns that “payday loans gone wrong are a horrendous thing”.

The song has the chorus

What we need is a union, we need a union on the streets/Everybody hand in hand, people can’t you understand”

and the verse

“Yeah it’s unfair/But they don’t care/The rich get richer/While poor get less”.

The release comes after a national network aimed at offering an alternative to payday lenders was launched last month by Sir Hector Sants, who is heading a task group for the Archbishop on promoting credit unions.

The scheme is being piloted in the Southwark, Liverpool and London Church of England dioceses.

Mr Bailey, who has worked on social campaigns to combat gun violence and has also set the speeches of the late Tony Benn to music, said he had felt “moved” to help the task group.

When I listened to the Archbishop of Canterbury speaking out about pay day lenders I felt moved to do something to help his task group to reach to the urban youth who are often the victims and introduce them to a much safer and ethical way of borrowing through credit unions,” he said.

Mr Lewis said: “The payday loan industry is relatively new, and has used powerful marketing to build its business and groom young people to think it is normal.

 “It isn’t normal, it’s an extremely expensive way to borrow that most should avoid.”

Dr Elizabeth Henry, the Church of England’s adviser for minority ethnic Anglican concerns, said: “Efforts like this help the Church to extend its reach and engage with people on issues that affect their everyday lives.

“The song is appealing and I hope will get the message across to all communities that credit unions are a much safer way to borrow.”

The pay day lenders have argued that their loans are intended to be repaid over a short term and fill a gap left by the High Street banks. But Archbishop Welby has expressed concern that these loans are tempting people into a spiral of debt.

The Consumer Finance Association declined to comment on the recording.

Source –  Durham Times,  11 July 2014

Benefit sanctions drive Newcastle families to payday lenders

Families are being forced into taking payday loans to cope with benefit delays, a city advice group has warned.

Newcastle Citizens Advice Bureau says the region has seen a 206% increase in the number of Job Seeker’s Allowance cases in just one year after Government rules came in which see benefits stopped as punishment for not finding a job.

While ministers say they want to force people to take job hunting seriously, the bureau says the strict new regime is having a different impact.

Shona Alexander, chief executive of Newcastle CAB, said that the longer minimum sanction period – when people are left without the financial support of their benefit – is having a counter-productive effect.

Claimants are distracted from job hunting as they focus on putting food on the table and keeping a roof over their head.

She added: “We see people here every day who have had their benefits sanctioned and who are desperate for money.

“They are often forced into the hands of payday lenders, which only make things worse.

“Sanctions often have a negative effect on our clients’ mental health. Being sanctioned can actually put someone further away from the workplace.

“They’re so busy trying to put food on the table and worrying about debts that they can’t look for a job.

“Some people don’t even know when they’ve been sanctioned, so by the time the money stops there’s no time for emergency budgeting, challenging the sanction or applying for hardship payments.

“For the first week they’ll struggle to get by, scraping up every penny.

“The second week they might borrow from family or friends, but by the third week they are desperate, and that’s when they come to us.”

In the North East, around 13% of those seeking work have had their benefits docked as a punishment for mistakes such as turning down an interview.

The extra pressure and financial burden caused by sanctions means parents struggle to put food on the table, pushing people further into debt and impacting upon their health.

The Government has previously defended the move, with employment minister Esther McVey saying: “Sanctions are used as a deterrent. The vast, vast majority of people don’t get sanctions.

“When you get Job Seeker’s Allowance – there’s a clue there in the name, job seeker’s allowance – you are paid that to make sure you are doing all you can do to get a job.”

More than £7m is thought to have been spent on appeal tribunals.

Source – Newcastle Evening Chronicle  22 April 2014

South Tyneside Waging war on payday lenders

Council leaders in South Tyneside are being asked to launch a crusade against high-interest rate lenders.

The move comes as the Citizens Advice Bureau in South Shields says the number of people approaching it with debts resulting from payday loans has doubled in the last two years and the average amount owed is £1,610.

A motion, to go before a full meeting of South Tyneside Council council later this week, calls for a series of measures to clampdown on lenders like Wonga, The Money Shop, Quickquid and Payday UK.

The recommendations are:

* Blocking access to loan company websites from council-owned computers.

* Issuing public warnings about the dangers of payday lenders.

* Work with partners to stop lenders locating in South Tyneside and prevent them promoting their businesses in the borough.

* Try to get licensing powers extended to limit the expansion of lenders in the borough.

* Provide debt advice to people affected by lenders.

* Promote the Bridge Community Bank in South Shields as an alternative lender.

> If it’s any incentive, I’ve got an account with The Bridge !

http://www.bridgescommunitybank.org.uk

The Money Shop, which has an outlet in Fowler Street, South Shields, offers an annual interest rate of 390.94 per cent and an annual percentage rate – the rate for a payment period, multiplied by the number of payment periods in a year – of 2,962 per cent.

Anyone taking out a £200 loan would face repaying – in a single payment, within 28 days – £259.98.

Coun Allan West, the council’s lead member for adult social care and support services, is a signatary to the motion, and says he is concerned that the most vulnerable people in the borough are falling foul of the lenders.

He said: “It is easy to understand the financial pressures that lead people to rely on payday lenders, but their excessive interest rates mean there is a real risk of a short-term financial issue turning into a long-term spiral of increasing debt and interest payments. A national cap on the cost of lending would go a long way towards protecting some of our most vulnerable citizens from the dangers of payday lending.”

He added: “In the meantime there is a lot we can do locally, by letting people know about options like The Bridges Community Bank, which offers much lower rates, as well as keeping money in the local economy.

“I would encourage anyone who has financial problems or concerns about the Government’s changes to the welfare system to contact the council’s welfare rights service on 424 6040.”

The full council meets at South Shields Town Hall at 6pm on Thursday.

Payday  lending firms have become a major political issue in recent years.

Many councils already block access to lenders’ websites from libraries and other public buildings and South Shields MP Emma Lewell-Buck, last year, signed a national charter – supported by some of Britain’s biggest debt, consumer and anti-poverty organisations, including Which?, Citizens Advice, StepChange Debt Charity and Church Action on Poverty – calling for tougher regulation of payday lenders.

In October 2012, Newcastle United sparked a storm when the club announced a four-year sponsorship deal with Wonga.com.

The payday loan company now has its name on the club’s shirts.

Wansbeck MP Ian Lavery labelled the company “morally bankrupt” on social networking site Twitter.

Before the start of this season, the club’s star striker, Papiss Cisse, said he would not wear the club shirt bearing a Wonga logo on religious grounds, but the row was resolved in time for the club’s warm-up match against St Mirren.

Source – Shields Gazette,  11 March 2014

Beware of the loan sharks

Payday loan sharks have trapped an increasing number of Brits into unmanageable debts and new research has revealed that this problem is increasingly getting worse.

In fact, a new report from the charity StepChange showed that the number of people seeking relief from payday lenders has shot up by 82 per cent.

Worryingly most of those vulnerable people seeking help had racked up thousands of pounds worth of debt after taking out more than one loan.

According to StepChange, people seeking advice in 2013 held an average of three payday loans, but at least 13,800 had five or more. The average debt was £1,647, significantly more than the average person’s monthly income of £1,381.

Many people make the mistake of taking out a payday loan believing that it is “easy money”.

However, payday loan companies are little more than legalised loan sharks that prey on vulnerable and low-income people and trap them into a cycle of debt that they cannot get rid of.

Many firms such as Wonga charge annual percentage rates (APR) of 4214%. To put it in layman’s terms and get an idea of just how quickly debt can balloon out of control, if you took out a loan of £3000 at 20 per cent APR (way below the average) and made the minimum repayment of two per cent or £5 per month, it would take you a whopping 90 years to pay it all back.

That is just at 20 per cent APR. Not at 4214% which was correct at the time this story went to print.

Now it is worth noting that the Financial Conduct Authority (FCA) assumes responsibility for the regulation of consumer credit in April.

Mike O’Connor, Chief Executive of StepChange Debt Charity, said that he hopes the FCA will address some of these issues.

He added: “The widespread harm and misery caused by payday loans continue unabated. The industry has failed to address the problems causing untold misery and damage to financially vulnerable consumers across the UK”.
“We hope the FCA’s proposals will address some of the areas of consumer detriment, but on issues such as affordability checking, rollover and repeat borrowing, there is an urgent need for even more radical reform”.

Unfortunately that seems unlikely, when you consider the corporate interests in maintaining high debt levels.

In fact, the StepChange charity highlighted the case of one man whose original £200 debt grew to £1,851 in just three months, thanks to inflated interest rates.

And this highlights an important problem. Most people simply do not realise just how rapidly their debts can run into the thousands before they take out a loan.

Fewer people realise that payday loan firms such as Wonga have previously advised the government on how to deal with consumer debt in the UK.

This essentially means that the government is working alongside those very companies who help to trap people into debt in the first place.

Further research conducted by YouGov for StepChange Debt Charity found that at least 26.3 million people had been offered high-interest credit such as payday loans via unsolicited marketing calls or texts.

These are often taken up by vulnerable, or desperate people who are uneducated about the high costs of loans.

And in most schools across the UK, financial management is not part of the curriculum.

Therefore, if you are struggling with money problems, avoid payday loan companies at all costs. It is better to speak to an independent charity or financial advisor who will offer help and advice for free and advise you on ways that you can make your budget go further.

> Or credit unions.

Source –  Akashic Times,  28 Feb 2014

http://akashictimes.co.uk/beware-of-the-loan-sharks-charity-highlights-predatory-behaviour-of-payday-lenders/