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Wonga’s Bad Sale Could Lead To Write Off MILLION Payday Loan Clients

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Charities, consumer groups and MPs say other ‘legal loan sharks’ who distributed checks without performing proper credit checks could be forced to take similar action

Victory: Stella Creasy

Up to a million payday loan customers could have their debts and late fees waived after Wonga admitted mis-sold loans worth £ 220million.

Debt charities, consumer groups and MPs say other “legal loan sharks” who handed out checks without performing proper credit checks could be forced to take similar action.

Wonga, Britain’s largest payday lender, has written off the debts of 375,000 borrowers – about one in five – after admitting he hadn’t checked to see if they could afford the refunds.

Campaigners believe that a fifth of the five million people who take out payday loans could make similar claims.

They say it could force many of the UK’s 400 companies out of business – legal loan sharks preying on the poor.

Wonga, which charges interest rates of up to 5,853% per annum, was forced by the city’s watchdog, the Financial Conduct Authority, to write off loans to 330,000 people with more than 30 days in arrears.

Another 45,000 who are up to 29 days late on payments will have their penalties and interest waived.

Labor MP Stella Creasy, spokesperson for the consumer party, has led a long campaign against high cost loans.






Misselling: The characters in the Wonga ad



She said: “I would be stunned if the FCA didn’t look at other payday lenders because this type of behavior is prevalent in the industry.”

Citizens Advice chief Gillian Guy said: “Half of the people who shared their experiences with us said they were not asked about their finances before receiving a loan.

“Any business based on the exploitation of people should not survive. “

Around 1.6 million people took out a total of £ 2.5 billion in payday loans last year, borrowing an average of £ 260 over 30 days.

But new rules can lead many lenders to bankruptcy because the loans will no longer be viable.

The FCA plans to limit interest and fees to 0.8% per day from January and ensure that no one pays more than double the amount borrowed.

An FCA spokeswoman said: “We are actively regulating the sector and would certainly be concerned about any business that does not follow our rules.

Wonga boss Andy Haste apologized last week for the company’s failings.

He said: “There is a real and urgent need for change in this business. “


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Payday loan ad runs every 78 seconds: TV plugs for high interest loans were viewed 7.5 BILLION times last year

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Payday loan ad runs every 78 seconds: TV plugs for high interest loans were viewed 7.5 BILLION times last year

  • Ofcom reveals that the number of ads increased from 17,000 in 2008 to 400,000 in 2012
  • It would take 138 days to watch all the ads back to back
  • Ads were viewed 7.5 billion times last year
  • Labor’s Ed Miliband called for ads to be banned on children’s television

Children as young as four see 70 payday loan advertisements on television each year.

In total, ads from companies offering short-term, high-interest loans were viewed nearly 600 million times by children last year, according to the figures.

It comes after a 23-fold increase in the number of such ads in just three years, with 397,000 airing in 2012 – more than half during the day.

Television watchdog Ofcom has revealed how the number of commercials rose from 17,000 in 2008 alone to 400,000 last year, which would take 138 days to watch back-to-back 24 hours a day. .

Pay in UK

Ads for people like WOnga (left) and Payday UK have come under fire for normalizing high interest loans

The number of payday loan announcements reached nearly 400,000 in 2012, down from just 17,000 in 2008

The number of payday loan announcements reached nearly 400,000 in 2012, compared to just 17,000 in 2008

Payday loan companies are accused of specifically targeting the use of daytime television to persuade the unemployed and those raising children to take out loans at more than 5,000 percent APR interest.

Charities and unions have called for a crackdown on ads that “prey” on vulnerable people and even influence very young children.

Labor leader Ed Miliband has called for commercials to be banned completely on children’s television after accusing the companies of creating a “quiet crisis” for thousands of families swamped in debt.

And money expert Martin Lewis has condemned the ads on children’s television as “inappropriate propaganda,” meaning even those under 10 are now harassing their parents to borrow money to buy. toys.

In 2009, there were only 17,000 payday loan ads aired on UK television, registering 12 million views or “impacts” among adults and 3 million children aged 4 to 15.

THE BIG PLAYERS AND THEIR BIG RATES IN A £ 2 BILLION INDUSTRY

Wonga advertising

WONGA Typical APR 5853%

Signing of a four-year contract to sponsor Newcastle United. This month, a Bafta-nominated director was hired to produce a film about the controversial company to counter criticism of its huge profits and sky-high interest rates.

Cash Lady Kerry Katona

CASHIER Typical APR 2670%

Controversy courted when she hired bankrupt ex-reality star Kerry Katona to run an ad campaign. But this summer, the Atomic Kitten star filed for bankruptcy for the second time in five years over unpaid debts. Her money troubles caused her to be ditched as the face of Cash Lady.

Pay in UK

PAYDAY United Kingdom Typical APR 2610%

Bought by US giant Dollar Financial in 2011 for $ 195 million. He is now part of the same company that owns The Money Shop, which has 550 stores across the country.

Quid fast

FAST FAST Typical APR 1734%

Spent around £ 3.2million on advertising on programs such as Friends, Desperate Scousewives and Hollyoaks. In July, he apologized after sending emails threatening to send debt collectors to people who had not borrowed money.

Last year, the number of announcements climbed to 397,000, with 7.5 billion hits in adults and 596 million in children.

This means that last year every adult saw 152 payday loan ads and 4-15 year olds watched the equivalent of 70 each.

A survey of MoneySavingExpert.com found that a third of parents reported their children under 10 repeating payday lender slogans, while 14% said when they refused to buy a toy, their child had prompted them to take out a payday loan.

Martin Lewis, creator of MoneySavingExpert.com, said: “Ofcom’s research is proof that payday lenders are preparing our children to become the next generation of borrowers, either on purpose or through carelessness in the process. publication of announcements.

“Our research shows that 14% of parents of children under 10 have asked their children for a payday loan when they’ve been turned down for things like toys.

“But the real danger is the normalization of these far from normal loans to the next generation.

“Six weeks ago we called on the government to ban all high cost credit advertising on children’s television.

“The Labor Party took it over and now supports the policy. Today’s research should serve as a bugle for others to follow.

“Mr. Cameron, Mr. Clegg – please, it’s about time you too supported this and made it happen.” “

Ofcom published an audience study on the advertising of payday loans on television.

Payday loans made up only 0.1 percent of all commercials, but that figure rose sharply to 1.2 percent.

More than half of the payday loan announcements aired on daytime television from 9:30 a.m. to 4:59 p.m.

An additional 16% were broadcast between 5 p.m. and 8:59 p.m. and 15% between 11 p.m. and 5:59 a.m., 9% between 6 a.m. and 9:29 a.m. and the remaining 6% between 9 p.m. and 10:59 p.m.

About 1% of all advertisements were shown on children’s television channels.

Citizens Advice CEO Gillian Guy said:
“Payday lenders are shamelessly and irresponsibly using advertisements to attack poorer households in an attempt to take advantage of the cost of living crisis.

“Payday lenders shouldn’t target kids and teens with ads.

“It is deeply concerning that children and adolescents were exposed to three times as many payday loan announcements in 2012 as in 2010.

“More and more ads are appearing on music and TV channels popular with teens and young people as lenders try to attract the next generation of borrowers.

With the targeting of “lenders” to young people and low-income people, comes the industry’s failure to ensure that loans are only given to people who can afford to repay. Citizens Advice found that 61 percent of loans do not have proper checks to ensure the borrower can repay the loan.

One in four payday loan advertisements appear on a music channel and 8% appear on movie channels.

The vast majority – 42 percent – is broadcast on major terrestrial channels.

Last month, Miliband called for a ban on ads during any program aimed at children. He said: “As the father of two young boys, I know how much they can be influenced by what they see.

“And I don’t want payday lenders to take advantage of the cost of living crisis and target children in this country.

“This is wrong, this is not what should be happening and this is why a Labor government would stop them from advertising on children’s television.

“It’s bad for young people, it’s bad for families and it’s bad for communities.”

More than half of all payday loan ads are seen on TV during the day, fearing they may target the unemployed

More than half of all payday loan ads are seen on TV during the day, fearing they may target the unemployed

The Unite union has called for a turn around 9 p.m. for payday loan announcements.

Unite Assistant General Secretary Steve Turner said: “This research paints a horrific picture of a generation of children and young people being dragged into a culture of debt by this bombardment of advertising.

“It’s not just kids who are infected with this payday lending culture. Research has shown that people borrow £ 660 per month just to pay for basic necessities – food, shelter and heat.

“The ASA should give a solid lead by introducing a watershed at 9pm for these payday loans so that children are not swayed by this insidious assault.

“The number of ads should be reduced because the public is fooled into thinking that going into debt is an easy and painless option – quite the contrary.”



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California lawmakers will once again not crack down on payday lenders

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In summary

California now has more payday lenders than McDonald’s. While some states have restricted their operations, the California legislature continues to bury bills aimed at cracking down on predatory lending.

When Melissa Mendez, a 26-year-old telephone bank worker, felt cramped a few months ago – “I was strapped for cash and needed to pay rent” – she walked into a Cash 1 store in Sacramento and took out a payday loan. The annual interest rate: 460 percent.

This rate would shock a lot of people. Not Mendez, who once worked behind the counter at an outpost at credit giant Advance America. She had applied for short-term loans from all kinds of people: old people needing more money because their social security check wasn’t cutting it, people between jobs and waiting for a first one. paycheck, and people like her, who didn’t have enough savings to make it through to the end of the month.

Unlike Mendez, many desperate people don’t know what they’re getting into, often agreeing to aggressive collection practices, inflexible repayment options, and sky-high interest rates. “They just show things and go through them very quickly,” she said. “A lot of people only see the money and they don’t see the interest rates.”

In California, 1 in 20 a year take out a payday loan, amounting to $ 2.9 billion per year. Payday loans have grown into a multi-billion dollar industry, fueled by triple-digit interest rates, high transaction fees, and the ubiquity of its hundreds of stores across the state.

A Cal State study found that California now has more payday lenders than McDonald’s.

Yet, while some states ban payday loan showcases altogether or severely restrict their operations, California is one of 26 states that allow loans with annual percentage rates above 391% on loans that must be fully repaid. within two weeks. Otherwise, borrowers face collection calls, an overdraft on their accounts, or even a court order for default.

Given the possibility of cracking down on predatory lending, the California legislature has buried at least five bills intended to curb the practice. These would have capped interest rates on loans, extended repayment terms or offered payment plans to borrowers. Among them:

  • AB 3010: Written in 2018 by MP Monique Limón, D-Goleta, it sought to prevent people from taking more than one payday loan at a time and proposed to create a database requiring approved lenders to record their loan transactions . Without the votes, Limón withdrew the bill.
  • AB 2953: Also written by Limón in 2018, it aimed to prevent lenders from charging more than 36% on auto title loans, also known as pink coupon loans, but failed to gain enough votes to advance to the Senate.
  • AB 2500: Written in 2018 by Assembly Member Ash Kalra D-San Jose, the bill sought to cap interest rates at 36% for installment loans between $ 2,500 and $ 5,000. He died on the floor of the Assembly.
  • SB 365: Written by Sen. Alan Lowenthal, D-Long Beach, in 2011, the bill proposed to create a payday loan database, but it was also launching.
  • SB 515: This 2014 bill from Senator Hannah-Beth Jackson, D-Santa Barbara, sought to extend the minimum term of a payday loan and require lenders to come up with payment plans, as well as develop a database and cap loans at four per year per borrower. He died in commission.

Limón said that this year, like in previous years, the billion dollar lending industry has gained ground. Both her bills met with strong opposition early on and she refused to make any changes that would have appeased the industry.

But this year’s effort was “historic” in that it was the first time that bills like this have come out of their original homes, she told CALmatters.

“We knew it was something that was going to push the boundaries, but we thought it was important to introduce it,” said Limón. “As long as there is a problem, I think California will discuss it.”

Among those who voted against Limón’s AB 3010 was MP Kevin Kiley, a Republican from Roseville. After questioning the idea of ​​limiting each person to one personal loan, he said that building a database “seems like a big undertaking. There are privacy issues, apparently reliability issues, potential state liability. “

Other states have taken stronger action in recent years to curb predatory lending. New York bans payday loans through criminal usury laws, which prohibit loan interest of 25% or more. The Arkansas state constitution caps rates at 17%. Most other states that have a cap limit lenders to 36%.

“(California) needs to innovate in order to lower prices for consumers,” said Nick Bourke, director of consumer finance at Pew Charitable Trusts, which has researched predatory lending nationwide.

“Conventional payday loans don’t help them when the problem comes back two weeks later. If credit is to be part of the solution, the only way is if it is structured to be staggered at affordable rates.

But payday and pink slip loan companies argue that what might sound like a predator are really just traders in a risky business protecting themselves from customers happy to take their money but sometimes neglecting to pay it back.

The California Financial Service Providers Association, the industry group that opposed Kalra’s bill, argued that a rate cut would hurt their profit margins and force them to slow lending, pushing consumers in the hands of lenders and unregulated services. The association represents some of the largest payday lenders in the country, including Advance America.

Advance America operates more than 2,000 stores in the United States and, since 2004, has spent over $ 1 million lobbying in California alone. The company did not respond to requests for comment.

“Investors consider the type of loan our member companies make to be high risk, resulting in a substantial cost for our members to borrow money which they ultimately lend to consumers,” the trade association wrote. “In addition, our member companies are located in the communities they serve and have significant accommodation and operating costs. Additionally, labor costs, the cost of underwriting and compliance, the cost of credit reports, and the cost of defaults, all drive up the cost of delivering the product to the consumer.

In California, consumers can take out a payday loan of up to $ 300, which is actually only worth $ 255 if you factor in the $ 45 fee, which in most cases has to be paid off. fully in two weeks. But a borrower who can’t make the full payment frequently takes out another loan to continue to cover other ongoing costs, and the cycle intensifies. In 2016, 83% of the 11.5 million payday loans were taken out by a recurring borrower, a practice known as stacking loans.

The annual percentage rate, a way of measuring how much the loan will cost in interest over a year, gives an idea of ​​how much a borrower will end up paying if the loan goes unpaid for a year. So at an annual percentage rate of 460 percent, someone who takes $ 300 can end up paying back $ 1,380 that year, not to mention the fees that multiply on each additional loan.

So who uses payday loans?

Because they don’t require a credit score as a prerequisite, they cater for cash-strapped borrowers who can’t go to a regular bank. Payday lenders only need income and a checking account to make these loans.

The condition analysis too find the windows of payday lenders are concentrated in places of high family poverty.

“Many California families suffer from income volatility and a lack of emergency savings. California has a very real problem because conventional payday loans really hurt people more than they help them, ”Bourke said.

More than 60 percent of convenience stores are located in postal codes with greater family poverty rates than the rest of the state, according to the California Department of Business Oversight. And nearly half are located where the poverty rate for African Americans and Latinos is higher than the statewide poverty rate for these groups. Most borrowers make an average annual income between $ 10,000 and $ 40,000.

The state says that mean The interest rate for payday loan transactions was 377% last year, a slight increase from the previous year. Approved lenders said they collected $ 436.4 million in fees, 70% of which was from borrowers who took out seven or more loans that year.

On average, Californians take out a loan of $ 250, but the often unaffordable interest rates sometimes force them to pay fees to take out another loan and extend the terms.

There are other options if borrowers need quick cash beyond the payday loan amount of $ 300, but they come with different risks.

In 2013, the State created a small loan program to regulate loans between $ 300 and $ 2,500. The state caps interest on these loans between 20 and 30 percent, but any loan over $ 2,500 is the “real Wild West,” said Graciela Aponte-Diaz, California policy director at the Center for Responsible Lending, a non-profit organization focused on consumer loans. .

“Loans between $ 2,500 and $ 5,000 have an annual interest rate of 100%. It’s detrimental to families who can’t repay, and 40 percent default, ”she said.

The Center for Responsible Lending this year sponsored the Kalra Bill, which unsuccessfully sought to cap interest rates at 36% for installment loans between $ 2,500 and $ 5,000. He recently died in the Assembly.

“It has a lot to do with the industry and how much money they are investing in efforts to kill it,” added Aponte-Diaz. “They hire all the best lobbying companies to kill our bills.”


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Peachy Payday Lender Goes Under Administration | Payday loans

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One of the UK’s best-known payday lenders has collapsed into administration – the latest apparent victim of a crackdown on expensive loans.

Peachy was one of the biggest names in the controversial industry after the disappearance of Wonga and Quid quick, and its collapse will be a blow to customers who claim they were badly sold loans they couldn’t afford. Administrators warned that compensation paid to able-bodied claimants would likely be “considerably smaller” than the claim amounts accepted by individuals.

Peachy claimed to have served 2 million customers since 2010, although it is understood that as of this week he has around 29,000 customers. Its website had quoted a representative interest rate of 855% APR.

Directors of Smith & Williamson were appointed to Peachy’s parent company, Cash On Go, which also operated as a Uploan personal loan provider.

Complaints about this type of high cost loan have jumped in recent years, and the UK’s Financial Ombudsman Service (FOS), the official complaints body, is taking a stronger position.

An increase in costly complaints was one of the key factors leading to Wonga’s demise, and the statement from Peachy’s directors referred to “the company’s financial condition and potential future redress claims.”

He added that the management of the company had tried to obtain new financing in order to be able to continue negotiating, but without success.

Existing clients were told that despite the demise of the business, they still had to repay their loans. “The terms and conditions of all loans remain as agreed upon when the loan was taken out, and payment remains due,” a statement said on the lender’s website.

If customers do not keep their payments, they risk having to pay additional fees or suffer black marks on their credit reports.

Complaints about this type of expensive loan are often related to affordability – for example, a borrower claiming that the checks a business should have done were not done properly, leaving them with interest and fees extra that he cannot afford. Others involve allegations that a company has acted unreasonably or unfairly when a person’s financial situation has changed.


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Alabama Senate Approves Payday Loan Reform Bill

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The Alabama Senate on Tuesday approved legislation that could limit the amount of interest charged by payday lenders.

The legislation, sponsored by Sen. Arthur Orr, R-Decatur, would extend the loan repayment period from 30 days to six months and regulate the interest a lender can charge.

“It keeps the industry going,” Orr said after the Alabama Senate approved the bill 28-1. “It makes for a product that a lot of people rely on. But that diminishes the punitive nature of our current system. “

Payday loans are short-term loans, currently with a term of between 14 and 30 days. State law limits the total amount of payday loans that an individual can take out to $ 500. Lenders can charge up to 456% APR on loans. Orr and supporters of the legislation say the bill would reduce the maximum interest rate to around 120% APR.

Industry critics say loans trap individuals in debt cycles and often force them to take out additional loans to repay past payments. A payday loan database, established by the State Banking Department after the industry’s unsuccessful efforts to block it, found the Alabamians were taking an average of $ 14 million in payday loans per week. Orr said earlier this year that lenders made 1 million payday loans in the first 10 weeks after the database was created, with just 20 percent of users being first-time borrowers.

“The database has proven what we’ve been saying for a long time, that it creates a cycle of debt,” said Shay Farley, general counsel for Alabama Appleseed, who has long fought for wage regulation. “People cannot afford to pay lump sum payments. “

Payday lenders claim they are providing a service to communities that traditional lenders do not serve and have said that strict interest limits will force them into bankruptcy and force borrowers to go to websites, where they can. pay more.

“There are approximately 400,000 Alabamians who use this service,” said Max Wood, owner of a payday loan store and president of Borrow Smart Alabama, an industry group. “They have two choices. They can go to local storefronts or the Internet. “

Orr’s Bill follows similar legislation passed in Colorado in 2010. A study by Pew Charitable Trusts found that about half of the state’s payday lenders shut down after passage. of the law, although those who survived did more business. Fees paid by borrowers fell from $ 95.1 million in 2010 to $ 54.8 million in 2013, while defaults fell 23%.

“It reduces the number of bad checks,” Orr said. “The repayment rate is increasing.

Reform supporters have pushed for a cap of 36% of the APR on loans. But Farley said Orr’s Bill was the best way to achieve their goals.

“We have firm commitments from people who see this as the only real compromise to bring about meaningful reform,” she said. “Otherwise. It will be too user-friendly or too user-friendly for lenders. We believe this is the Goldilocks bill and should be passed this year.”

The bill passes through the House of Representatives.

The law does not cover securities lending, which is governed by the Small Loans Act. Title deed lenders can charge up to 300% APR on these loans.


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New budgeting apps aim to disrupt payday lending

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At a time when the industry is moving towards faster payments, a handful of entrepreneurs are looking to bridge the gap between an honest day’s work and a decent salary.

These apps are seen as alternatives to late payment fees, overdraft fees, and payday loans for those with unstable incomes, like Uber drivers, freelancers, or even some hourly paid employees.

Emerging technology comes as slower payments seem increasingly anachronistic in the mobile age. It challenges the tradition of paying people first and fifteenth and tackles one of the thorniest issues in consumer finance: liquidity.

“Household liquidity affects so many Americans,” said Ryan Falvey, who oversees the Financial solutions laboratory, a five-year, $ 30 million initiative run by the Center for Financial Services Innovation with founding partner JPMorgan Chase & Co. “It’s a problem on the one hand and it’s a pretty big market as well.”

According to the CFSI, 57% of American adults struggling financially, and fintechs and employers alike see the ability to put income in workers’ pockets faster as an opportunity to build relationships.

More recently, Uber would have been in discussion with the banks so that its drivers have, among other things, access to their daily payroll if they wish. Lyft, which has partnered with Stripe, announced same-day or next-day payments for interested drivers starting in November and for a fee.

Startups like Active hours, FlexWage, Clearbanc, Same and Payactiv strive to disrupt the payroll of workers or subcontractors paid by the hour. Some, like Activehours, allow the user to access a portion of their wages owed before payday. Others, like Even, strive to smooth out irregular income. All of them comb through transactions and other data to provide funds to individuals on their terms, rather than to the employer.

“The cost of withholding someone’s salary is high,” said Ram Palaniappan, Managing Director of Activehours. He said consumers should be able to choose when to get paid, just like they choose when to withdraw money from an ATM. “They shouldn’t really have to wait for pay days anymore.”

Activehours was born from a personal experience Palaniappan met while working at his old company, Rushcard, where an employee working in the call center took out a payday loan. He viewed the employee’s money problem as a cash flow problem, not a salary problem. Instead, he floated the money to the employee. This idea turned into Activehours, launched last year.

“I knew if I didn’t try to do this I would still feel bad about myself,” he said.

The company relies on direct deposit and the employment history of its users, and has integrated several time-and-attendance systems to verify hours worked before floating the money. It then automatically withdraws the money from its users’ bank accounts on payday. It says its users currently represent more than 4,000 companies.

Basically what Activehours does is loan, but the company is adamant that the product is decidedly different from in-store payday lenders.

The most striking difference is the fee structure. Activehours has no fees, or at least no fixed fees. It asks its users to give what they think is appropriate. Payday lenders, who are increasingly monitored by regulators for predatory practices, may charge clients an interest rate greater than 500% when expressed annually.

Activehours describes itself as an “ATM for your paycheck”. And observers like Jennifer Tescher, president of CFSI, say companies like Activehours shouldn’t be seen as payday lenders.

“Calling them lenders because of the way they’re structured takes away from the mission they’re trying to accomplish,” Tescher said. “I don’t think any of these companies would say they’re in the lending business. They are in the business of cash flow smoothing.”

Disrupting the payroll cycle is just one way to solve the cash flow problem for on-demand workers who aren’t always sure how much or when they’ll be paid.

According to an Activehours white paper, more than $ 1 trillion is stuck for more than two weeks in the payroll system, and the stakes can be extreme. The white paper highlighted a consumer who wrote that pay-on-demand “has been there to help me keep my bills and eliminated the choice of paying my bill or eating or driving to work.” .

The apps respond to a changing economy with more on-demand workers. In the past, self-employment was often side work, and as a result slower payments caused fewer problems, said Jay Bhattacharya, managing director and co-founder of Zipmark, a payments company.

“It is becoming a hot topic,” Bhattacharya said.

The emergence of pay-break applications also highlights the late payment problems causesaid Jordan Lampe, director of communications and political affairs at real-time payments company Dwolla.

The ACH, which is often used to shift the salaries of bank account holders, can take several days to be deposited into an employee or contractor’s account for many reasons such as batch processing systems. banks, risk mitigation techniques or public holidays.

Banks “will have to anticipate and allow a reality where the economy and our lives will not be willing to wait two to three working days“Lampe wrote in an email.

The Activehours model is currently direct to the consumer, but Palaniappan does not rule out partnering with a bank and already has bank employees using its app.

“We try to make it a very good customer experience,” he said.

Building relationships with happy customers could be the intrinsic value of a business that has a payment model that you want. Startups provide users with cash when they need it and aim to get them out of the cycle of overdrafts, payday loans, and late fees. And by requiring direct deposit, startups are building relationships with people who have bank accounts.

There are of course potential obstacles. Most direct deposits are based on the ACH system, so receiving funds will not be instantaneous. They also run the risk of potentially introducing other bad spending habits, such as people perpetually draining their paychecks.

The upstarts’ work to overcome cash flow challenges comes as some banks seek to help consumers break the habit of living paycheck to paycheck. Recently, USAA has deployed financial evaluation notes, for example. KeyBank works to weave financial notes in the digital experiences of its customers and already has an application for forecasting customer cash flows. The Consumer Financial Protection Bureau has also encouraged banks to step up their financial literacy efforts.

Putting together tools that smooth and forecast cash flow is the next step banks and startups should look to, Tescher said.

“We now have a series of products that let you withdraw the money you’ve earned when you need it and others that give you cash flow estimates so you can plan. We need to put them together,” Tescher said. “It’s my idea of ​​nirvana.”


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Fintechs are embarking on payday alternatives where banks fear to step

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As banks delay offering consumers alternatives to payday loans despite encouragement from regulators, a small but growing group of non-bank lenders are working with U.S. employers to provide low-dollar payroll financing.

United Way started offering the Salary Finance platform, operating in the UK since 2015, to its employees in October and linking it to some of the Fortune 500 companies that the association has partnered with for decades. Walmart Inc. is partnering with PayActiv, a fintech based in San Jose, Calif., To offer payroll advances to its 1.4 million employees. Uber drivers can collect their hours worked digitally through Earnin, based in Palo Alto, California.

“We are seeing an increase in payroll or employment related revenue. I think that’s one way businesses are trying to solve this problem of access to credit, ”Laura Scherler, senior director of economic mobility and business solutions at United Way, told Bloomberg Law. “Until now, there was no solution that worked on the market.

Companies connect their employees, often low-wage workers, to Salary Finance’s lending platform, and loans are repaid through fixed payroll deductions. Operating through employers lowers the costs of acquiring loans from Salary Finance and reduces underwriting fraud, CEO Asesh Sarkar told Bloomberg Law.

This, in turn, leads to more affordable loans. The company charges no fees and only earns income on loan interest, which it strives to keep low, nearly 10% on average, which the company says helps l The average American employee saves just over $ 1,000 compared to other loan options, Sarkar said. Loan sizes vary, although the average is around $ 4,000, Sarkar said.

The link to payroll makes employer-based solutions distinct and powerful compared to other low dollar loan products, Todd Baker, senior researcher in law and public policy at the Richman Center, told Bloomberg Law. ‘Columbia University.

“Because of this link, Salary Finance has an information advantage over a market lender because direct observation of employment and stability is greater than reliance on indirect data from the credit bureau. for credit analysis, ”said Baker, also managing director of Broadmoor Consulting LLC.

Tying a loan to an employee’s salary “allows someone who would otherwise pay 400% for credit to get it at 10 to 15%,” Baker said.

Find a foot

So far, United Way has helped introduce Salary Finance to nine companies, Scherler said. The Alexandria, Virginia-based nonprofit receives a marketing fee for each company that agrees to offer salary funding to its employees. Employers do not pay or receive payment on Salary Finance loans, Sarkar said.

Salary Finance has partnerships with the UK branch of Weight Watchers International, Inc. and the aerospace company General Dynamics Corp, among others. But it’s still small in the United States, so far with only one other publicly announced loan partnership besides United Way, insurer L&G America.

The fintech company continues to chart the regulatory waters of the United States, partnering with Axos Bank for its lending products, obtaining state licenses and adapting its platform to different state regulations relating to loans and wages.

With that groundwork laid, Sarkar said he expects Salary Finance to announce several new U.S. employer partners in the first quarter of 2019. The fintech company is also in talks to partner with state governments. Sarkar said, especially in states that have taken a hard line. against payday loans, but where other options are not readily available.

“We think we’re kind of on a growth curve here,” he said.

Trend of wages earned

Other types of salary-related fintechs are on the rise. PayActiv advances to Wal Mart employees are deducted from an employee’s next paycheck.

“Our ability and agility to integrate seamlessly with pre-existing business systems enables execution” that banks are unable to accomplish, Ijaz Anwar, co-founder and COO of PayActiv, told Bloomberg Law via email .

PayActiv has also partnered with community banks and credit unions to offer salary advances to employees of financial institutions, Anwar said.

Earnin’s program for Uber drivers, based in Palo Alto, Calif., Relies on users to tip the app company for immediate access to wages. Earnin’s no-charge, interest-free advance is also deducted from a user’s next paycheck. Partnering with Uber is strategic for employees who work unpredictable hours, but the app can be used by any employee with a bank account and direct deposit.

Banks hesitate

The Office of the Comptroller of the Currency issued a bulletin in May encouraging national banks to return to the low-value loan market with the goal of taking business from payday lenders. The Federal Deposit Insurance Corp. seeks public comment on a possible similar decision. But most traditional financial institutions withhold low dollar offers.

One potential hurdle is the wait for the Bureau of Consumer Financial Protection’s small dollar lending regulations and their application to banks. Rules completed in 2017 required payday lenders and other installment lenders to determine in advance whether borrowers can afford their loans and also set limits on the number of consecutive loans borrowers can take out. These regulations are now under review under Republican leadership from the office.

US Bank has been one of the few banks to intervene so far. In September, the Minneapolis-based lender began offering installment loans up to $ 1,000. Repaid over three months, the annualized interest rate is just over 70%, well below the triple-digit rates common to payday loans.

Banks are ideally located to offer low-value loans because they have existing relationships with potential clients, Jonathan Thessin, senior attorney at the Center for Regulatory Compliance at the American Bankers Association, told Bloomberg Law. But many are reluctant to enter the market until all federal regulators, including the CFPB, are on the same page.

“If we are to encourage banks to offer broader products that meet greater demand, we must first remove the barriers that prevent banks from offering small dollar loans,” Thessin said.

The OCC declined to comment and the CFPB did not respond to a request for comment for this story.

Reach the ladder

While the fintech-employer partnership models are promising, they lack the potential breadth of the banking industry to provide consumers with alternatives to payday lenders, Alex Horowitz, senior executive of the financing project, told Bloomberg Law. the consumption of the Pew Charitable Trust.

Pew estimates that consumers spend $ 9 billion a year on fees and interest on payday loans, in addition to paying off the principal.

“What every payday loan borrower has in common is an income and a checking account,” he said. Banks and credit unions are “possibly the safest way for millions of borrowers to save billions of dollars,” he added.

Consumers generally rate ease of application, speed of origination, and cost as the main factors in taking out an emergency loan. “The banking model has the ability to tick all of these boxes,” Horowitz said.

The scale issue is significant across the board, but the employer-based model works today, Baker of Columbia University said. “If you could do that at an employer like Walmart, you would hit at least a million employees,” he said.

“In the short term, non-bank companies like Salary Finance are going to have a significant impact on a significant number of consumers,” Baker said.


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Things to keep in mind before applying for a payday loan

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When you find yourself in financial difficulty, getting quick cash with minimal effort becomes a priority. There are several ways to achieve this goal, including requesting a salary advance, selling an asset, or borrowing from family or friends.

However, this is not necessarily a realistic possibility, leaving you in need of an alternative. To bridge this gap and secure the funds you need right away, why not consider getting a payday loan?

What Are Payday Loans?

Payday loans are short-term financial products that aim to lift borrowers out of immediate debt. You may have to travel for a family emergency or you are running out of funds to pay your electric bill. Whatever the reason, you can take out a personal loan online to help you until you receive your next salary, pension or benefits payment.

Given the current conditions, with peaks in coronavirus infections, what makes a payday loan even more appealing is that you don’t have to leave your home to get one. Online applications are straightforward and don’t require as much documentation as conventional loans.

Terms and conditions

Like any debt instrument, a payday loan comes with conditions. It must be repaid, plus interest, over a specified period. You can negotiate the number of installments required with the lender. However, loan terms rarely extend beyond three months and only if they exceed an amount specified by the lending company.

Therefore, you won’t have three months to pay back a few hundred dollars. Lenders expect loans to be repaid in full within two or three weeks, depending on how long it takes before your next amount of income is paid.

Missed payments incur additional interest and mean paying more than you might have had if you had met the repayment schedule. The interest rates charged on short term loans are higher than those of their term counterparts. This means that a missed payment will add a significant amount to your balance.

Apply for a personal loan

Each lender has unique requirements, but applicants should expect to provide the business with proof of identity, age, income, and bank details. A payday lender will also want a verified email address and cell phone number to contact you. At a minimum, applicants must be 18 years old, although some companies may specify that their products are only available for 21 years and older.

Lenders reserve the right to examine your credit score before offering you a loan. However, many do not rule out applicants with bad credit history. Keep in mind that defaulting on a payday loan could lower your credit rating, which would affect your ability to get other loans in the future.

Is A Payday Loan Necessary?

Like any other debt, a payday loan shouldn’t be your first option in a crisis. Explore ways to cut expenses, make deals with people you owe money to, or raise money elsewhere. It is only after you have ruled out such an option that you should consider contacting a payday lender.

Borrowing money can get you into a cycle of debt, where you borrow more to pay off existing debt. It is a hamster wheel that is difficult to escape. If you find yourself in this situation, seek advice from a debt professional to explore alternatives.

Awareness of lenders

Some companies operate in a seemingly legitimate way, enough to convince you that they are being honest. However, some are no better than loan sharks, looking for easy prey. Research different lenders before choosing one and make sure that they are registered with the proper authorities.

A lender who is reluctant to give specific repayment amounts, insists on taking something like your passport as collateral, or does not provide you with a written contract should alert you. Some offer interest rates that seem much lower than others, but there are usually hidden charges, or the loan shark uses them to trap you in the debt cycle.

The advantage of online payday loans is that you can easily establish their veracity and check the reviews online to get an idea of ​​how they work. Plus, it gives you access to hundreds of lenders, not just those who operate from storefronts in your area.

Cooling period

There is a 14 day cooling off period after committing to a payday loan. During this time, you have the legal right to withdraw from the contract. If you decide that borrowing the money was a mistake, you can pay it off with interest within two weeks.

Make sure that this cooling-off period is included in your contract so that you can take advantage of it if necessary. Too few borrowers read the fine print of a loan agreement, which could put them at a disadvantage. In addition, they are not always aware of their rights as borrowers. It is the customer’s responsibility to know their rights and they cannot rely on the lender to tell them.


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FCA orders payday lender to return £ 34million

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UK Small Business Updates

Britain’s financial watchdog has forced a payday lender to issue more than £ 34million in compensation to 91,000 customers over ‘unfair practices’.

The Financial conduct authority said CFO Lending, a UK company that operated under various aliases including Payday First and Flexible First, had “a number of serious breaches” which “have caused harm to many customers”.

The heavy watchdog repair package is the latest in a string of tough payday lenders that have bankrupted many people. The FCA last year put a cap on how much short-term credit providers can charge, which it says would wipe out almost all payday lenders.

Wonga, once the UK’s largest payday lender, reported its first annual loss in 2015 after reshaping its business to comply with watchdog rules and diversify its strategy to survive in a tougher market.

The FCA said Monday that CFO Lending neglected to have conversations about affordability before signing borrowers for ongoing monthly repayments, as well as sending threat letters, the FCA said.

The Leytonstone, east London-based company will pay £ 31.9million to write off outstanding customer balances and £ 2.9million in repayments, the FCA said. She has already stopped making new loans. CFO Lending did not return a request for comment.

The FCA began regulating payday lenders in 2014, after a rapid expansion of the sector was accompanied by a significant increase the number of people facing serious debt problems as a result of borrowing at high interest rates.

Two years ago, Wonga canceled £ 220million in debts for 330,000 customers following talks with regulators.

The FCA has since imposed tough new rules on the industry, including fee caps and a limit on the number of loan repossessions, after some payday lenders were found to impose annual percentage rates of more than 5,000 for hundred.

More than 1,400 companies have left the industry since the regulatory crackdown began, as consumer complaints have exploded.

However, a separate home loan industry, which provides home loans to people who cannot access traditional banks, continues to thrive and is trying to move its business online.

“Payday loan regulations are making a difference and the number of people we see with payday loans has gone down,” said Mike O’Connor, CEO of the Step Change charity. “But there is more work to be done in all forms of consumer credit to ensure that everyone is protected from the damage that bad practices and harmful products can cause.”

The FCA found that CFO Lending made excessive use of ongoing monthly payments for borrowers who were likely in financial difficulty. The company also refused “reasonable repayment plans suggested by customers and their advisers,” the regulator said.

Additionally, the regulator said, CFO Lending has failed to assess the affordability of lending from guarantors and has been found to “routinely report inaccurate customer information to credit reference agencies.”

“We found that CFO Pret was treating its clients unfairly and we made sure that they immediately put an end to their unfair practices,” said Jonathan Davidson, director of oversight – retail and licensing at FCA.

“Since then, we have worked closely with CFO Lending, and we are now happy with their progress and how they corrected their previous mistakes. ”

CFO Lending has also been traded under the names Payday First, Flexible First, Money Resolve, Paycfo, Payday Advance and Payday Credit.

Additional reporting by Emma Dunkley


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Google Bans Predatory Payday Loan Apps: Why Did It Take So Long?

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The institution of payday loans is the worst of predatory capitalism. Pixabay

A specific circle of hell is reserved for those who run payday loan companies. To take Scott tucker. He made a deal with the devil. Tucker, a former professional racing car driver, has built an illegal payday lending empire and is currently serving a 16-year and 8-month prison sentence. Why? Because his $ 2 billion payday loan business has destroyed people’s lives, exploiting 4.5 million consumers through deceptive loan terms and illegal interest rates. Tucker now resides not only in prison, but also in the Eighth Circle of Hell for scammers.

Imagine how many more lives Tucker could have destroyed if he also had a payday loan application in the Google play store?

SEE ALSO: Google bans weed delivery apps from trading

The institution of payday loans is the worst of predatory capitalism; it attacks the desperate and the impoverished, literally destroying people’s lives as they surrender in a snowball effect of debt with outrageous interest rates and questionable terms. Some people end up taking out additional payday loans just to pay off the debt incurred on the original payday loans. There are far too many sad horror stories. Imagine a man’s Kafka-esque hell who took out a payday loan of $ 2,500 for a medical emergency and was left with a debt of $ 50,000 due to interest payments.

Of course, you can cancel this scenario as a one-time event. But according to the National Center for Consumer LawThis is too typical a result with payday loans. As noted in the centre’s report on predatory loan: “Annual interest rates of 300% to 1000% or more are often disguised by the structure of the loan.

In comparison, the APR on credit cards typically ranges from 12% to 30%. Crunch the numbers. Do the math. The results are equal in criminal matters. Payday loan companies know exactly what they are doing and are preying on people at the bottom.

Basically, the business strategy of payday loan companies is: let’s target low income people who are struggling to get by and change them a 100% interest rate.

Still not sold on the nastiness of payday loan companies? Here is what Jean Olivier had to say about them.

As you can see, payday loan companies are pure evil, operate through predatory means and, guess what, these companies have applications as well. Yes, if you have a shady business practice, why not spread it to the masses? Specific state laws may prohibit this type of short term, high interest rate loans. But an app circumvents these so-called “state laws”. A payday loan app can inflict all the predatory damage of a payday loan to anyone in the world right from their smartphone.

And, surprisingly, it took Google that long to figure out that payday loans are a bad thing. The tech giant recently announced that it was ban these apps from the Play Store. A Google spokesperson said The Wall Street Journal, the company banned payday loan applications that use “deceptive and exploitative” personal loan terms.

It was a long time ago, Google.

In 2016, Google stopped showing ads for payday loan companies. To be more specific, Google has banned ads for loans with repayment terms of less than 60 days, as well as ads for loan companies with an annual percentage rate of 36% or more. Banned payday loan ads are in good company; Google also refuses to advertise weapons (especially firearms), tobacco products and recreational drugs.

Apple, on the other hand, does not have this type of ban on payday loan applications. Yes, for now, Apple agrees with these practices. A spokesperson for Apple said to WSJ that it regularly revises its App Store rules to “address new or emerging issues.”

Well, Apple, maybe it’s time for a routine review of a not-so-new problem.

Another problem to be solved: Google and other tech giants have the power to crush an entire vertical company, if they choose. They also have the power to drive change in terms of questionable business practices. In the case of payday loan applications, this would reduce their criminal percentage rate.

Meanwhile, 16 years from now, when Scott Tucker is released from prison, he can start a new life designing payday loan apps for the Apple App Store.

Why did it take Google so long to ban predatory payday loan apps?


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