Pay day loans bad? Yes, for most – but the only choice for many.

I saw this by Sophie Ridge of the News of the World, on their politics blog.

I thought it only told half the story – so I wrote a reply (not yet made visible) to say that they seemed to resemble that vile invertebrate – the necessary weevil – and that they would do so until the major banks decided to do some low margin, but socially responsible, lending.

I’ve no brief for the pay-day loan vultures, but I believe we should think hard before tarring the entire sector with the same brush. And the minister (Kevin Brennan) knows this too: I was at a meeting he hosted last month where he and the charitable sector were reminded that the people who take this kind of credit just can’t get it anywhere else.

The poor funts (financial untouchables – a word I helped coin) just can’t get credit elsewhere. The burgeoning Credit Union sector has told government they would need to charge as much as the high interest credit providers (I am thinking more of people like Provident here) simply because of the risk of non-repayment from customers in this sector. The guy at the meeting representing the mainstream banks (through the British Bankers Association) admitted his members “did not have the expertise” to lend in that sector.

So, whilst huge amounts of credit are miss-sold in this marketplace, where does a person go when the washing machine finally becomes irreparable, when two new tyres are needed for the van to pass its MoT or a cot, car seat and buggy are needed for a new arrival?

Part of the problem is in the nature of the credit and the character of the consumer. If a payday loan is used as intended (and repaid in a month or two), then the interest paid (whilst high by any interpretation) is no worse than saying to a mate “lend us a tenner till the end of the month and I’ll buy you a pint”. And if the borrower does repay quickly (probably by making real sacrifices in other areas of living), then all is not unreasonable. However, the temptation is to roll the credit onwards and upwards and, even if you don’t add another penny to what you owe – but just repay the interest, the amounts soar and become ludicrously unaffordable.

For me, there is a solution, something I’ve been bleating on about for years – but which is now fashionable. Force the mainstream banks to offer products in this market. They can afford to absorb the risk. And, as we are now, in many cases, their majority shareholder, we can afford to say that they should represent their shareholders’ interests and lend to them. All of them.

Even the funts.

Debt Free Direct Ex-directors and a new debt charity?

Really interested to see this piece in the Daily Telegraph today.

It is all about some ex-directors of Debt Free Direct setting up a charity to give people free debt advice.

The Telegraph article is interesting, saying that two of the men are still directors of commercial debt management companies and that the Foundation they set up had an association with a trading company (I presume doing IVAs and debt management) which itself went bust.

However, this rang a bell. Back in 2003 (I think) an organisation called Debt Advice Trust (which seemed to be associated with the new one – Debt Advice Foundation, only Debt advice Foundation is actually older than Debt Advice Trust: Confused – you will be) was set up and advertised itself as “independent” and “not for profit”. My company, ClearDebt (another IVA peddler, Mr Telegraph) complained about it to the Advertising Standards Authority (ASA) saying it was neither and that we thought it was a vehicle to pass cases to Debt Free Direct.

The ASA upheld the complaint. They said:

“The ASA noted that the words “not for profit” appeared four times in ad (a) and three times in ad (b) and considered the word “Trust” emphasised the organisation’s not for profit nature.  We noted that DAT was incorporated as a company limited by guarantee on 30 April 2007 and whose Memorandum of Association precluded the distribution of profit or payment to directors and required that on winding up any surplus assets needed to be applied to another charitable institution with similar objects.  We noted that DAT’s profits were gifted to the Debt Advice Foundation, a registered charity whose last published accounts, for 2006, revealed no expenditure.  We noted that two of DAT’s directors were trustees of the Debt Advice Foundation. We also noted that DAT’s three directors were also the three executive directors of Debt Free Direct plc, now Fairpoint Group plc, a commercial company whose principal activity was also the provision of financial advice and appropriate solutions to individuals experiencing personal debt problems.  We understood the company had a turnover of £28M in the year to 30 April 2007.  In addition to the proportion of referrals to Debt Free Direct, we noted that re-mortgage referrals were made to DFD Mortgages, a subsidiary of Debt Free Direct.  We considered that in context “not for profit” suggested DAT had no financial interest in the advice they gave and the solutions they recommended, whereas their links with Debt Free Direct’s staff, knowledge, premises, directorships and shareholdings and the support they expected from those to whom enquirers might be referred did not support that.“

The full ASA ruling is here.

What goes around, comes around.

DON`T GO FAR OFF, NOT EVEN FOR A DAY

Sent to me by a tireless obsessive who, I think, shares my passion for romance:

I Crave Your Mouth, Your Voice, Your Hair

Don’t go far off, not even for a day, because –
because — I don`t know how to say it: a day is long
and I will be waiting for you, as in an empty station
when the trains are parked off somewhere else, asleep.

Don’t leave me, even for an hour, because
then the little drops of anguish will all run together,
the smoke that roams looking for a home will drift
into me, choking my lost heart.

Oh, may your silhouette never dissolve on the beach;
may your eyelids never flutter into the empty distance.
Don’t leave me for a second, my dearest,

because in that moment you`ll have gone so far
I’ll wander mazily over all the earth, asking,
Will you come back? Will you leave me here, dying?

Pablo Neruda

A blog too far

Got really ticked off by this guy Martin Bamford today – he wrote a blog I didn’t understand: If I am right it appears to be wilful misinterpretation of  an article written by the BBC and a press release issued by the Ministry of Justice – they have banned a whole load of companies making false claims about being able to resolve personal injury claims and unenforceable contracts.

Damn right these chaps should be banned. However, Bamford’s piece implied  it was fee-charging debt management companies that were being banned willy-nilly. Some of these firms did do debt management – but for that to be used to imply that we are all charlatans and rogues infers ignorance or worse on Bamford’s part. Actually there are some good quality standards in place.

Here’s what I wrote in response:

“Martin,

I think you may be misleading people.

Most of these weren’t debt management firms – they were claims assistance (either personal injury or unenforceable contract) firms. Kudos to the MoJ for closing them down!

As for fee-charging debt management firms: First, there is at least one quality standard (see www.debtresolutionforum.org.uk – members of which represent more than half the fee-charging DM firms in the UK). Secondly, the charitable sector reckons it has the capacity to deal with two million enquiries – when the need is for four million per annum. Thirdly, much of the charitable sector only provide advice, they don’t make distributions from their clients to creditors – precisely the service many of these people need – just getting advice from CAB won’t necessarily make you less hopeless with money.

Fourthly, using a fee-charging DM company can make a huge difference: We do often succeed in negotiating interest freezes on our clients’ balances – which makes a huge difference – and many of us are able to offer Individual Voluntary Arrangements (IVA), where possible – which is, potentially, a final solution to debt – with real debt forgiveness thrown in.

Even the Money Advice Trust (despite the spin in its press release) has done research which shows the value brought by fee-charging DM companies: http://www.moneyadvicetrust.org/images/fee_charger_research_final_report.pdf

DRF (Debt Resolution Forum) members are part of a body that has created the first properly academically accredited qualification in debt resolution (Cert.DR – three 80 hour study modules with proper exams, accredited by EdExcel) and an independent monitoring and accreditation scheme designed to keep members up to the mark and adminstered by the Insolvency Practitioners’ Association (http://www.insolvency-practitioners.org.uk).

Yes – there are loads of cowboys in the debt business – that is one of the reasons DRF exists. But, don’t tar us all with the same brush”.

Mail on Sunday – my name in lights

Well, hardly… But I was pleased to be quoted in Dan Atkinson’s piece on Debt Relief Orders (a new procedure for people who can’t afford to go bankrupt).

Thought the guy who commented about borrowers not paying back was rather churlish – Our experience is most people who can’t repay want t0 do their best to repay debt, it is usually just that life has dealt them a rough deal (getting pregnatn being one of the roughest – boy does that cost, not least because a life predicated on dual incomes, no kids looks rather sick when it becomes three lives financed by one pay cheque.

It’s no use the banks and others treating these people (often miss-sold to in the first place) as funts (a word a chum (twitter – @reallyworried) and I coined) – they are future customers and there are now far too many to ignore (Citizens Advice Bureaux are getting 2 million plus debt enquiries a year).

Many retired Britons owe more than they can repay

I reposted this from my company blog – because I thought it might interest my most ardent readers – and because I thought I’d try a a poll just for fun (please give it a go).

“I have just been doing some work on our database (Probably the world’s largest Excel spreadsheet) of information from people who are worried about their debts. As a by product of this i discovered some facts about retired people and debt.

On average, employed people owe unsecured debts of just under £28,000 and retired people owe just under £25,000. So far so unremarkable.

However, I had a look at what their debt to income ratio was. And fell of my chair. Retired folk owe in credit cards and unsecured loans alone (not the mortgage – which I presume they have paid off) 234% of their annual income. People in employment owe 144% of their take home pay.

OK this is admittedly a skewed sample – it is only people who have sought our advice on their debt problems. But that’s a lot of us these days. Seems to me that preparing for retirement does not mean paying off one’s debts – that looks like an accident waiting to happen.”

Syllogism? BBA guilty – I think so

I’ve commented on ANOTHER British Bankers Association Blog. Because I think (ok  I am no philosopher, I might have got this quite wrong) that the writer has spotted a cause-and-effect relationship that might not really exist.

He said:

“Everyone (ourselves included) calls them bank lending statistics but they could just as readily be called customer borrowing figures: how much customers are borrowing from banks. The difference this would make to reporting of these figures is huge. Instead of reading that banks are lending less to their customers (from which we can infer that banks are holding on to their cash) we might be reading today that customers are borrowing less from banks (which suggests that in the downturn people are paying off rather than extending their debts and are not buying houses they still believe to be overpriced). The supply of cash is therefore irrelevant: the demand for it is falling. The truth as always is somewhere in between, but it seems few commentators are looking there.”

I said:

“Syllogism alert (http://en.wikipedia.org/wiki/Syllogism- for a teach-in).

Call them customer borrowing figures and assume people are borrowing less, Indeed! Why can’t it be that you are lending less, still afraid you don’t know where the toxic debt is buried?“

What do my tiny body of readers think? Have I got it wrong?

Unemployed consumers struggling with debt – 25% increase

• The proportion of people with debt worries who are unemployed has risen by 25% this year (ClearDebt data shows).
• But this will rise much faster in months to come – I think
• Will probably carry on rising even after  employment starts to grow again

Seeing some stuff on Twitter earlier about UK unemployment figures I thought I’d take a quick look at my company’s (ClearDebt) user stats.

The results were sadly predictable: We’ve had 7,175 people fill in our debt advice questionaire so far this year and 12% of them were unemployed (this despite the fact that our website makes it perfectly clear that at least one of the solutions we offer is rarely suitable for people who don’t have a job).

In the same period last year the figure was 9% – so the proportion has grown by a quarter.

Trouble is I think we ain’t seen nothing yet. Debt is a lagging indicator and most people ssume ostrich position as soon as they realise they are struggling – it can take months, nay years, before they take action on debt. And, in this case, redundancy is going to afflict the prudent impecunious as well as the spendthrift – so there are people out there, right now, who are filling up the credit cards they didn’t need when times were good and who have not yet realised they won’t be able to pay it all back.

The sky will be black with chickens coming home to roost – but not yet.

British Bankers Association – wonder if they will publish.

I saw a blog on the BBA’s website – which really got my goat. Here’s a quote:

“Yes the banks have admitted their roles in the credit crunch, have apologised for it publicly and are working furiously to return the banking system to something approaching normal. They continue to accept that the sector’s reputation has taken a battering from which it will take a long time to recover, but they are working to restore confidence in the system which did in the good times bring enormous benefits - and wealth – to the UK“.

Well – I understand that they would say that, wouldn’t they. And the author, Brian Mairs, is one of their communications chaps. But, I really need to see some sackcloth and ashes from these people. I really need to feel we are returning to a world where the word prudence takes precedence over the word bonus.

I wrote a response (I had to shorten it a bit – to meet their website’s 500 character limit for comments.

But, here is what I wanted to say:

“Let us hope that the history books of the future remember that the banks caused this recession and that they did it by gambling with our money.

Let us remember that they took risks by lending to people a significant proportion of whom they knew would not be able to repay (and they priced the products accordingly).

Let us all remember that the recession is being deepened by the financial failure of many of these individuals, whose insolvency is caused by the banks’ imprudent lending policies.

And then let us remember that we, Britain’s taxpayers, have paid to keep the banks that failed us in business.

And let us remember that in five, ten or twenty years time when we are still paying our nation’s debts through higher taxes.

Oh, and who will we be repaying these debts too? the banking system of course”.

I wonder if they’ll publish the comment? Ardent reader, I’ll let you know if they do.

Honourable members for…

I’ve just been listening to prime ministers questions (PMQs) on the BBC iplayer.

Now, I always hated most of New Labour’s parliamentary procedure reforms – because i liked my House of Commons quirky. Why did  ”opposition debates” have to supplant “supply days”. What was wrong with “Order Papers” that they had to become “Summary Agendas and Orders of Business?, etc, etc.

Anyway, the change that really got my goat was when they switched from addressing each other, in the chamber, as the honourable member for East Loamshire or the hon. mem. for Piddling on the Green. Now, they get announced by their actual given names for goodness sake.

Well, I hated that change, just because it made our legislative chamber seem a little less quaint, a little less English.

But now, with the crisis in parliamentarian’s probity and the collapse in public trust, I see this change as much more powerfully detrimental.

Surely, every time they were called by the name of the constituency they represented, they were given a tangible reminder  that they had been put in their seat by people who trusted them and that those people could, when the time came, just as easily, turn them out again.

It must be time to return to the old ways. Shouldn’t MPs be required to remember they are there by the grace of their electorate – and not simply because they have climbed party politic’s greasy pole?

I call on the honourable member for Wigan Pier to respond.