Posted on 01. Aug, 2014 by Money Cactus.
There is no sign of any abatement in the stream of bad press the payday loan industry is receiving, as a recent investigation by the Competition and Markets Authority(CMA) adds weight to growing regulatory concern.
The latest investigation into payday loans has found that a lack of price competition could be adding as much as £30 – £60 to customers’ bills. To make the charges more transparent, the CMA has recommended the creation of an independent price comparison website, which will allow prospective borrowers to see just how much their loan will cost.
Is there really a lack of price competition in the payday loan industry?
Although this proposal has been welcomed by a lenders’ trade body representing the leading payday lenders such as wonga uk, the CMA’s claim there is a lack of price competition in the payday loans industry is somewhat perplexing. A simple Google search for the term ‘payday loan lenders’ shows the true extent of competition in the industry.
The CMA claim it is specifically price competition that the industry lacks; however, along with convenience and speed, price is one of the most fiercely contested differentiators in the market. As we’ve already discovered, the payday loans market is bustling with competition. If new entrants into the market don’t compete on price, how can they ever hope to establish themselves in such a busy market?
The cost of convenience
The majority of people who take out a payday loan do so out of convenience. The average income of a payday loan customer is actually very similar to the overall population. It is often the case that alternative credit facilities take time to access, and often ask for long term commitments customers do not always wish to make. The Competition and Markets Authority claim that the lack of price competition could add £5 to £10 to the cost of a £260 loan over just three weeks. But is that the result of limited price competition in a market full of established lenders and new entrants, or the cost of convenience?
How much does a typical loan cost?
Research into the industry has shown that, on average, payday loan customers take out close to six loans a year. The regulator believes that, in a more competitive market, customers could make an annual saving of between £30 and £60.
The regulator added that some customers might receive a worse deal still, given the considerable gap between the cheapest and most expensive operators in the market. However, some commentators might argue that this diversity in price is further evidence of price competition in the market.
Should be there a cap on costs?
An investigation has been ongoing since last summer, after the Office of Fair Trading (OFT) raised concerns about the way the industry currently operates. The OFT felt customers were finding it difficult to calculate and compare the full costs associated with payday loans.
This contentious point has been privy to claim and counterclaim. The consumer group Which? believes the investigation has failed to get to the heart of the payday loan problem, which centres on affordability.
Which? feels the next step is to force lenders to be more transparent and upfront about the costs of their loans, helping consumers to make more informed decisions. However, the Consumer Finance Association, which represents a number of payday lenders, has welcomed the CMA’s recommendations, and believes the investigation has gone a long way to protecting choice and promoting competition, making it difficult for rogue lenders to establish a foothold in the market.
What should you consider before taking out a payday loan?
- Although the advertised monthly costs may seem low, the annual rates are considerable. Short term loans should only really be used in an emergency.
- Loans can be quick and convenient, but sometimes customer service levels fall short of the standards customers expect.
- There may be more affordable options out there, so make sure you explore every option available to you before proceeding with a payday loan.
Whether you’ve had a good or bad experience of payday loans, we’d love to hear from you. Have you received poor service? Perhaps the whole experience was much better than you expected? Either way, please your thoughts in the comments section below.
Posted on 01. Jul, 2014 by Money Cactus.
It might not be immediately apparent but the Queen is an active champion of small businesses in the UK.
Her Majesty’s expression of that support comes in the form of her annual address on the occasion of the state opening of parliament. 2014 proved to be no exception, with the Guardian newspaper offering an insight into key sections of the speech and summarising the reactions from a number of commentators and spokesmen on behalf of the country’s small businesses.
The Queen’s speech
The speech is published on the official government website and outlines its plans and intentions with respect to a list of policies and legislation for the current session of parliament.
Small Business, Enterprise and Employment Bill
Clearly, this is the key piece of proposed legislation for small businesses and is designed, says the Queen in her speech: “to help make the United Kingdom the most attractive place to start, finance and grow a business”.
As part of this plan, the legislation aims to:
- improve the access to finance needed by small businesses;
- improve ways in which customer payments may be made to small businesses;
- allow small businesses to compete fairly for their share of the £230 billion public procurement contracts that are made each year;
- improve the means by which small businesses may make investments; and
- minimise bureaucracy and red tape affecting the way in which small businesses operate.
There are many options to traditional bank loans. No mention is made, however, of the numerous ways in which alternative sources of funding are being tapped by businesses eager to expand and grow. This includes small business loans, Government grants, crowdfunding and investors etc.
Confederation of British Industry
The referenced report by the Guardian newspaper carries the reaction of the Deputy Director-General of the Confederation of British Industry (CBI), Katja Hall, who comments on the reliance of Britain’s economic recovery on making adequate credit available to small and medium sized enterprises.
The spokesman also referred to:
- a need for lenders to have better access to credit data in order to inform their lending;
- the improvement of small business’ cash flow problems by introducing a system under which tardy payers (later than 60 days) need to pay up or explain their reasons for failing to pay; and
- the need for improved access by tender for small businesses interested in competing for government contracts.
Federation of Small Businesses
National Chairman of the Federation of Small Businesses (FSB), John Allen, welcomed the apparent step forward in government’s support for small businesses and the role they play in the economic recovery of the country.
He described the proposed legislation as a “landmark bill”, which covered many of the issues over which the FSB has been concerned; in particular the rules governing late payment of invoices and the reduction of bureaucracy and red tape.
British Chambers of Commerce
The Director General of the British Chambers of Commerce (BCC) also called for policies and legislation that led to the simplification of life for small and medium sized businesses.
John Longworth expressed support for the declared aims of the small business, enterprise and employment bill, but also voiced the caveat that any measures needed to be seen to be working.
David Bywater is a partner responsible for small and medium sized businesses at accountants KPMG.
His comments focussed on the construction industry in particular in which he referred to the army of suppliers made up by small and medium sized enterprises. Describing the legislative proposals as “infrastructure developments”, he welcomed the prospect of improved access to finance and regulation with respect to the late payment of invoices.
He reserved his principal support, however, for anything that put into law the reduction of bureaucracy and red tape that appears to beset British businesses. These obstacles currently consume valuable time and effort on the part of small businesses, detracting them from the very process of running the enterprises for which they are responsible.
A round-up of comments
The various spokesmen for small businesses evidently welcomed the promises made in the Queen’s speech but also stressed that any intended legislation needed to take practical effects, especially in the reduction of the bureaucracy and red tape under which small businesses continue to labour.
Bio: Judy Sturgess is a stay at home mum to two boys who loves writing. She works freelance for a number of websites.
Posted on 29. Jun, 2014 by Money Cactus.
Competition is good in any industry, even in a marketplace full of companies as maligned as the payday lenders. A recent review by the Competition and Markets Authority (CMA) stated that there was a lack of price competition in the payday lenders market which could be adding between £5 and £10 per loan onto the cost of customers’ bills.
The latest news, that Britain’s crackdown on payday lending is driving away much of the competition, flies in the face of concerns about price competition, and begs the question: just how does the Financial Conduct Authority intend to effectively regulate this industry?
The UK crackdown
In the past 18 months there has been a mass exodus of payday lenders from the market in anticipation of the introduction of a new regulatory regime, introduced in April. Of the UK’s 210 payday lenders, a third failed to apply for permission to operate. This is in addition to the estimated 30 lenders that have had their licenses revoked by the Office of Fair Trading (OFT) or who have voluntarily surrendered their licences since 2012.
Government and regulatory criticism
The payday lenders have been under fire from all quarters, facing criticism from consumer groups and politicians for their Annual Percentage Rates (APR), which can reach as high as 5,000+ percent. However, a more accurate indicator of the true cost of a payday loan is to look at the monthly charges, as the loans are intended only for very short term use.
Ed Miliband has argued against what he calls the “Wongaeconomy” named after the UK’s largest payday lender Wonga.com. Regulators have also joined the fight against the payday lenders by placing operators under tougher scrutiny. The Financial Conduct Authority (FCA), which has been responsible for regulating the industry since April, has already introduced tougher new rules, and has also been working on a cap on the cost of credit, which it is preparing to outline in the coming months.
Operators withdrawing from the market
The intense scrutiny being placed on lenders has already taken the scalp of one of the largest operators in the industry. The Cheque Centre, which operates 451 branches across the UK, recently agreed to remove payday loan products from its portfolio. Quick Loans Dot UK is another that has fallen by the wayside, surrendering its licence due to political and regulatory pressure.
The negative connotations of the exodus
There is expected to be a further glut of operators leaving the industry when the cap on charges is introduced in 2015, and this will undoubtedly be hailed as a victory for the consumer. However, where there is a need, there will inevitably be lenders who will take the place of those vacating the industry, prompting an increase in the number of unregulated loan sharks, who had previously been driven from the market.
The Consumer Finance Association, the trade body of the payday lenders, has warned that the number of illegal lenders will increase as the regulated, larger operators are driven from the industry. In this instance, a regulated industry that offers a worthwhile service to those seeking short term finance will be replaced by unregulated, illegal lenders, who controlled the market before the payday lender came along.
The potential structure of the lending cap
Currently the FCA are in the process of discussing the prospective lending cap with consumers, trade bodies and lenders in an attempt to create a cap which is beneficial both for customers and regulated lenders.
George Osborne has added weight to the discussion by calling for a cap not just on interest rates, but also on arrangement and default fees. Such an approach will help to reduce the overall cost of credit. Australia already has such a cap, which limits the upfront costs on loans to 20 percent, while reducing the maximum ongoing charges to 4 percent a month. Although the approach has experienced some success n Australia, it has also driven some lenders to operate offshore, while offering more long term loans which were not subject to the caps on 12-month charges.
What do you think is the best approach to regulating the payday loans industry? Will more competition result in a natural decrease in charges? Will strict regulation drive the payday lenders away and pave the way for predatory loan sharks? Please leave your thoughts in the comments section below.
Posted on 30. May, 2014 by Money Cactus.
There’s so much paperwork at tax time; tiny little receipts flying all over the place and no matter how organised you intend to be, those bits of paper always seem to get away from you; sound familiar? No need to panic; in fact there’s never been a better time to get focused. With a little planning and a bit of help from somebody like Fox Symes, you can face the financial year end with determination instead of trepidation.
Pay In Advance
Try to pay as many tax deductible expenses in advance – even into next financial year. This common money management strategy is used by many successful enterprises and it works just as effectively for your personal finances. By paying for some of next year’s bills now, you can receive the deduction in this financial year. Note that this strategy only works for deductible expenses, such as interest on investment loans or certain types of insurance premiums. The larger your prepaid expense items, the greater your deductions. The other benefit of this strategy is that it gives you a really clear, running start to your new financial year. The best way to utilise this strategy is to keep paying deductibles in advance so you have a rolling run of deductibles with which to offset your income each financial year.
Charitable giving is often deductible, so if you are considering any worthy causes it’s a good idea to donate before the financial year ends on June 30. Make sure you keep your receipts. If your contribution is paid monthly via direct debit, ask about receiving a statement for your contributions at financial year end.
Consider Private Health Cover
If you earn well, you probably get hit with a surcharge. You can avoid this by taking out private health insurance. You do need to have held the policy for the full financial year in order to receive the full benefit, but if you don’t already have some form of private health cover then you can at least make a start.
Receive This Year’s Income Next Year
It isn’t always easy (or practical) to defer income but if you can have any bonuses, term deposit earnings, or dividend payments deferred until after July 1, you will not be required to pay tax on that money this financial year. You will of course need to declare it next financial year; running a rolling balance sheet works just as well for maximising income as it does for minimising expenses.
Do you have a system for tracking receipts and deductibles? The end of financial year is an ideal time to examine your paperwork systems. Ask for electronic receipts whenever possible and make sure your computer files are organised in an easily manageable way. For those times when you can only get paper receipts, set aside some regular time to scan these in regularly; weekly or monthly works well for most people. This means you will always have electronic records for anything you might claim. Remember – if you can’t prove it, you can’t claim it.
Making a living isn’t about what you earn; it’s about what you keep. Maximising your tax return is all about keeping as much of what’s yours’ as you can so it’s worth a little time and effort to get it right.
Have any tax time horror stories? Let us know in the comments box below.
Posted on 08. May, 2014 by Money Cactus.
Unless you’re fortunate enough to have been born with a silver spoon in your mouth, funding a new business venture is likely to involve a seemingly endless struggle with the green stuff.
For fledgling firms, cash is especially tight, with begging letters to bank managers, endless loan forms and countless snobbish letters rebuffing your pleas for funding.
But times have changed.
Gone are the days of relying on a cash injection from your local financial institution, with many modern start-ups looking at more unorthodox ways to fund their business goals.
Check out the top five below …
1. Use a Factoring Company
Countless rapidly expanding businesses are using factoring companies as a handy alternative to the traditional overdraft.
This route involves your firm selling the majority of invoices to a factoring firm at a discount. They’ll then provide you with a cash advance, usually at around 70-90 per cent of the value of the invoice.
2. Join the Crowdfunding Movement
Crowdfunding is one of the hottest ways of raising cash and it involves collecting finance from a large number of backers by using various digital platforms.
Crowdfunding has helped finance non-profit campaigns, political campaigns and charities, and can be very fruitful for businesses keen to involve unknowns in their capital raising efforts.
3. Obtain Government Backing
In Britain, it’s possible for businesses to benefit from the Funding for Lending scheme introduced by the Bank of England over two years ago.
The scheme allows building societies and banks to borrow from the Bank of England at lower rates, which means they can lend more freely to businesses just like yours.
4. Find an Angel
Not a real angel, of course, that would be a bit odd, but an angel investor equipped with the wealth and experience to help your firm grow from small acorn to mighty oak.
Estimates reckon business angels inject over £800m into new companies every year in the UK, with shares in that organisation the typical upshot of their financial backing.
5. Venture Capital
When you’re attempting to build a business up from the ground, suddenly handing an element of control to a venture capitalist may make you more than a little uncomfortable.
However, this arrangement can actually be very beneficial for new businesses, assuming the investor and firm they’re investing in is a match. Typically, above average returns tend to make the risk for investors worthwhile.
Image by Howard Lake on Flickr