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Monday, 28 May 2012 05:04

Payday loans by numbers

240 - The number of payday lenders in the market.

2 billion - The estimated worth of the sector in pounds.

50 - The number of payday lenders that were warned after a report in March by the trading watchdog to prove they are up to scratch or risk being put out of business.

12 - The number of weeks the Office of Fair Trading (OFT) gave lenders to show that they have addressed the problems it has found.

30 - The number of payday lenders' websites that emphasised speed and quick access to cash over cost out of the 50 looked at by the OFT in March.

270 - The typical size of a payday loan in pounds.

12 or more - The number of consecutive rollovers that some payday customers had in the most severe cases found by OFT inspectors.

According to The Telegraph, UK payday loan customers are being encouraged to come forward to ombudsmen with any mistreatments or complaints about their lenders. The urge comes from the UK's Citizens Advice after examining that three quarters (665 cases) of payday loan cases in the country are worthy of financial ombudsman services. Over a third of the cases revealed that lenders have been using a recurring payment method to drain cash from customer's bank accounts without any warning. 

Saturday, 21 April 2012 07:43

Payday Loans

The ads are on the radio, television, the Internet, even in the mail. They refer to payday loans, cash advance loans, check advance loans, post-dated check loans, or deferred deposit loans. The Federal Trade Commission, the nation’s consumer protection agency, says that regardless of their name, these small, short-term, high-rate loans by check cashers, finance companies and others all come at a very high price.

Here’s how they work: A borrower writes a personal check payable to the lender for the amount the person wants to borrow, plus the fee they must pay for borrowing. The company gives the borrower the amount of the check less the fee, and agrees to hold the check until the loan is due, usually the borrower’s next payday. Or, with the borrower’s permission, the company deposits the amount borrowed — less the fee — into the borrower’s checking account electronically. The loan amount is due to be debited the next payday. The fees on these loans can be a percentage of the face value of the check — or they can be based on increments of money borrowed: say, a fee for every $50 or $100 borrowed. The borrower is charged new fees each time the same loan is extended or “rolled over.”

The federal Truth in Lending Act treats payday loans like other types of credit: the lenders must disclose the cost of the loan. Payday lenders must give you the finance charge (a dollar amount) and the annual percentage rate (APR — the cost of credit on a yearly basis) in writing before you sign for the loan. The APR is based on several things, including the amount you borrow, the interest rate and credit costs you’re being charged, and the length of your loan.

A payday loan — that is, a cash advance secured by a personal check or paid by electronic transfer is very expensive credit. How expensive? Say you need to borrow $100 for two weeks. You write a personal check for $115, with $15 the fee to borrow the money. The check casher or payday lender agrees to hold your check until your next payday. When that day comes around, either the lender deposits the check and you redeem it by paying the $115 in cash, or you roll-over the loan and are charged $15 more to extend the financing for 14 more days. If you agree to electronic payments instead of a check, here’s what would happen on your next payday: the company would debit the full amount of the loan from your checking account electronically, or extend the loan for an additional $15. The cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

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