Loan Sharks and Pay Day Lenders

It is estimated that 165,000 households in Britain use illegal money lenders and that many thousands are in serious debt to them. The borrowers are people with a bad credit history or who cannot manage their finances or whose income is very low. The current recession is blamed for the squeeze on people’s incomes and state benefits are rarely enough to fill the gap. In extreme cases, parents resort to stealing food.

The poor are fertile territory for doorstep lenders. If you are desperate and the kids haven’t eaten for three days, a person coming to the door and offering a loan seems like the Messiah. In fact, they are a pack of wolves.

Demands for action against loan sharks led to the establishment of official Illegal Money Lending Teams which operate across the country. They claim to have secured 222 prosecutions, assisted 19,000 victims and secured prison sentences on perpetrators totalling 150 years.

Debra Wilson wanted to buy a computer for her daughter as a Christmas present. The cost was £350 so she borrowed £500 from a money lender, accepting that there would be “a bit of interest” added to the repayments. A few days later, the lender said he wanted £750 in return, payable the following month. Mrs Wilson could not meet the terms and took out further loans, increasing her debt. At one point she was paying more than £2,000 a month and over seven years the lender charged her a total of £88,000, sometimes accompanying demands with threats of physical violence.

In Newcastle Crown Court, Judge John Evans told Robert Reynolds, Mrs Wilson’s lender: “You are a loan shark, a person without a conscience. Your behaviour was beneath contempt. Reynolds admitted a charge of harassment with intent to commit violence and received a suspended prison sentence.

The supposed legal sector of pay day loans is little better. For Wonga and other "legal loan sharks" it is a £2bn business. One million families are being forced to take out payday loans every month as they struggle to meet the rising cost of living, new research reveals today. A poll for Which?, the consumer organisation, shows that nearly 400,000 of them use the high-cost loans to pay for essentials such as food and fuel, while 240,000 need the money to pay off existing credit. Half of the people who take out payday loans find they can't cover the cost of repayments – which can attract interest rates of more than 5,000% – which means they are forced to take out new credit and spiral further into debt.

The poll by Which? found that 4 per cent of people, equivalent to one million households in the UK, said they had taken out a payday loan in the last month. Some 38 per cent of people who do so use them to pay for food and fuel, while 24 per cent repay existing payday loans. A total of 79 per cent of people, about 38.5 million adults, use some form of credit, while 44 per cent are worried about their household level of debt.

Seven in ten of payday loan users regret taking out credit in the past, while 49 per cent found they couldn't meet the high cost of payments, and 28 per cent said that, while they don't like being in debt, they saw it as a necessary part of their life. While the repayments and interest on a month-long loan may be initially small, borrowers get into trouble when they cannot pay back on time, or have to roll over the credit. What starts off as a small amount can spiral into tens of thousands of pounds.

Edukashun

Fewer pupils from deprived backgrounds are going to university in Scotland despite a raft of initiatives to widen participation, according to a new report.

In 2006-07, just 14% of school-leavers from secondaries in the lowest participation areas for higher education went to university compared to 19% in 2002-03. Over the same period, the proportion of pupils from the schools which enjoy the highest rates of progression to higher education has fallen only slightly, from 31% to 29%.

One of the aspirations of the government expansion of higher education in the mid-1980s, and then again in 1992, was to allow wider participation, but the main beneficiaries have been the "middle" classes.

John McClelland, chairman of the Scottish Funding Council said more should be done to address inequalities of opportunity.

A Scottish Government spokesman said: "It is unacceptable that an educational gap between advantaged and disadvantaged people opens up early in a child's life and continues throughout."

Yet another failure of well-meaning palliatives .

Socialist Courier also wonders if the UK will follow the growing trend in the American student loan market where banks including HSBC, have pulled out . In the US, many undergraduates take out a federal guaranteed loan and top up their financial needs with a private loan from lenders such as Bank of America, JPMorgan Chase and Citi-group. In the academic year 2005-06, $17 billion in private student loans was used to finance higher education. Banks have become reluctant to offer private student loans because worsening credit conditions have meant that they cannot package up the loans and sell them on. The brightest students who win places at America’s rich Ivy League universities will be affected less because of generous bursaries - which do not have to be repaid – less able students applying to other institutions are expected to face difficulty in securing private loans to fund their study. At one end of the field is Harvard University, with $34 billion of endowments, and at the other are many community colleges and low-tier universities with limited resources.
"...those students with poor credit scores or without the rich uncle co-signers [loan guarantor] may have real problems funding themselves.” The Consumer Bankers’ Association, said

Debt Fears

One in five Scots home owners struggle to meet their mortgage payments, a survey suggests.

Almost one million people find it difficult to cover their monthly repayments and other debts .

Researchers also found 18% reported having to rely on credit cards or loans to pay for daily essentials like food.

Head of personal insolvency for the accountancy firm KPMG in Scotland, Andrew Kennedy, said: "Those people who have been robbing Peter to pay Paul, transferring balances from card to card, remortgaging and taking equity out of their property to pay off spiralling debt are fast running out of options."

KPMG said the global credit crunch meant payment troubles could worsen over the coming months ,people who previously had access to competitive mortgage deals, despite being late with a couple of payments, are going to find it very difficult to find a deal , and that the credit crunch is already seeing credit card companies reducing credit limits and increasing their rejection rates for new customers.

“Debt is the slavery of the free" - a Roman , 1st century B.C.
" A man in debt is so far a slave" - an American , 19th century AD

Bankrupt Solutions

Scotland's poorest and most vulnerable debtors were yesterday offered their cheapest escape from creditors.
The Scottish Government said it would allow so-called "Ninas" - people with no income and no assets - to declare themselves bankrupt for a fee of just £100.
The new "cheapie" bankruptcy will be available only to people who earn less than £220 a week, the equivalent of 40 hours on the minimum wage, and have less than £1000 in assets.

A capital(ist) solution to the problem of poverty !!

Meanwhile the Independent reports the accountancy firm Grant Thornton predicts the total number of personal insolvencies nationally will jump to at least 120,000 this year, almost triple the equivalent figure in 2004. As many as one third of bankruptcies in the first three months of the year will be caused by "excessive Christmas spending".

Steady increases in the cost of living are expected to tighten the screw. In only 12 months, the cost of filling up a vehicle with unleaded petrol had increased by 16 per cent, which meant the public was having to find an extra £155 a year to fill up the car.
Mr Gerrard , head of Grant Thornton's personal insolvency practice , said: "Coupled with rapidly increasing gas and electricity prices, which are forecast to jump by more than 10 per cent early this year, it's easy to see how those already struggling to pay off credit, particularly those servicing mortgages, are caving in to the pressure." He warned: "I believe personal insolvency numbers will move forward at a much faster pace than anticipated."

Howard Archer, the chief UK economist at Global Insight, suggested that in general people would have to be more frugal this year. "Household purchasing power is likely to be dented by higher energy and food prices over the coming months, while many home owners face having to re-fix their mortgages at significantly higher rates."

But there is always a silver lining inside capitalism since also according to the Independent , the debt collection industry grew sharply last year .There are now estimated to be 5,200 enforcement agents in England and Wales, including 600 county court bailiffs and more than 1,000 unregistered debt collection companies. Since 2003 the size of the industry has almost trebled, growing from £8.6bn of debt sold on to professional collection agencies to £22.7bn by the end of last year. It is forecast to grow to £24.1bn by the end of this year.

The Credit Crunch

Further to the previous post this news item perhaps explains the reason why many workers find it necessary to work long hours .

Around one in three mortgage customers face higher repayment rates and difficulty in borrowing more on their homes in the light of the recent credit crunch.Lenders have become increasingly cautious following the problems in the credit markets, and as a result many home- owners will be offered less favourable terms if they want to remortgage their homes. More people than ever are set to fall into the sub-prime category as a result of missed debt repayments, meaning that borrowing will now be put out of reach for many.

Mintel market analysts , estimates that around 9% of the UK's 16.5 million mortgage holders will now be considered sub-prime by lenders. It also forecasts that a further 24% could also be considered a high risk because of their personal circumstances, such as being self-employed or not having a regular income, or because they had moved frequently or fallen behind with household bills. Those coming off fixed-rate deals taken out before the recent interest rate rises will be particularly hard-hit and that many people may not be able to absorb these increases and millions of people could start to suffer financially.

Other research released yesterday, from web credit specialists uSwitch.com, claimed that one in four people are now struggling with unmanageable debts and 12% admit they have missed repayments during the past six months. Around 23% of people say their current level of borrowing either borders on being unmanageable or is no longer manageable. The group said 12% of people also admitted they have missed payments on debts or bills during the past six months and 10% have had a payment bounced by their bank because they had insufficient funds in their account. 38% of people applying for new credit were turned down with 19% of personal loan applications rejected.

One in 10 people claim they are now trapped in a vicious cycle of debt where they may need to get further into debt just to meet their existing financial obligations, and 13% may have to turn to credit just to meet their living costs. At the same time, one in five consumers say they have maxed out at least one of their sources of credit, with 11% going up to their spending limit on a credit card and 10% doing the same on an overdraft.

23% of people are now more worried about money than they were a year ago and 18% are more worried about debt.At the same time 34% say they are feeling financially worse off and more than half of people do not think it is a good time to make a life-changing decision such as buying a home, having a baby or changing jobs.

The average person now sees half of their take-home pay eaten up by debt repayments, with 35% going on their mortgage and 18% spent on unsecured debts.

Is it no wonder that many now try to earn more by working more - just to pay off debts

Personal debt increases

Over 8 million British adults are in serious debt and over 2 million are struggling with repayments. 18% of adults in Britain are in £10,000 or more of unsecured debt such as credit cards, overdrafts, loans and store cards .The number of bankruptcies rose by 10 per cent in the first quarter of 2007 compared with the same period in 2006. Around 420,000 people were prosecuted for defaulting on loan repayments in the first six months of this year - up eight per cent on 2006. Scotland was revealed as the area with the highest proportion of indebted residents .

The Bank of England has raised the cost of borrowing five times in the past year to 5.75 percent -- the highest level in six years. Analysts expect another rise to 6 percent by the year end . High levels of unsecured debt are clearly linked to the rise in interest rates over the last 12 months . The record rise in house prices -- especially in London and the south-east -- has led to a growing discrepancy between mortgage payments and salaries. The high pressure to maintain social and commercial status often goes hand in hand with high expenditure on the high street. Borrowers affected by the higher interest rates now are storing up debt problems for the future; instead of making cuts in their personal expenditure, they are taking on further unsecured loans and credit cards .

See here about the bubble bursting