Archive for the ‘interest rates’ Category

What is microfinance about?

December 6, 2009

Tim Harford writes in the Financial Times Weekend Magazine about Microfinance. He is the author of Dear Undercover Economist.

This is a neat little survey of the field, but left me distinctly disturbed. Now I understood the origins of Microfinance to be affordable small loans to help the underprivileged in poor countries to start the process of lifting themselves, and so contributing to their nation.

Affordable to me describes the whole package. Small sums that are enough to purchase stock for the initial trading of a small business, or loans to households to supply needs. The repayments would be small and might not start for a while. And the interest rate would be very low.

In the UK this is not a new idea and was operated by the Midlands Tallymen, who loaned the money to buy clothing and domestic cottons and linens from sometime in the C19. They would lend about £10 at a time and seek repayments of about ten shillings (half a pound) a week for 21 weeks.

That is dear enough at 5% on a twenty week loan, an APR of about 12.5%, certainly not cheap for the time in question. But it dwarfs and pales beside the figure quoted by Harford from a study of a South African project with charges equivalent to 200%.

No wonder he says that the value of the system is questionable.

In Kenya a savings accunt paid no interest and charged ‘hefty’ fees for withdrawal. That just seems an activity run by sharks.

That is a killer charge; it makes no sense to me if its purpose is to help the less fortunate. But in my research over the banks across the world, and the profit seekers who treat no one with sympathy it is all too familar.

In analysing the new Lending Code I find that Microfinance has become a word for the banking community. But they define a micro-enterprise as a business employing fewer than 10 people and with a turnover or asset total approaching £2million.

That certainly seems small, but Micro?

Actually it is a European Union definition! This suggests some confusion of understanding about the idea, though the effect that the smallest businesses should be treated with more care and responsibility than the bigger ones is a positive approach to the learning curves faced by those developing them.

I wouldn’t want to discourage any of this, but I am sorry to see so much opportunism creeping in.

Perhaps it needs a while longer to settle down into a sound international system.

Joseph Harris – Debt Control Man

 http://www.controlyourdebtcrisis.co.uk

Control Your Debt Crisis on Your Own Terms

Mortgage Relief? For Gordon…

December 3, 2008

 

For a moment I think we all believed the Government had actually wanted to help mortgagees. We should all have known better.
And talking of Better, it seems outside the financial casino no one gets real help.

Anyway, I know mortgages are not my speciality, but the fading, like the fairy dust it was, of the substantive part of the promise was remarkable.

First it seemed homeowners were going to be really, really helped with a six month – something or other with the banks holding fire on giving defaulters a hard time. Though I was never clear if it was a moratorium, a halt to rude phone calls, or just a six month delay before the repossession papers get served – any way eight banks said they’d do it.

That’s our curate’s egg of owned, part owned, and almost owned banks. Nationalised, as any self respecting linguist might say!

Then it seemed that homeowners at risk of having problems on their payments were going to be really helped by some long arrangement to give them breathings space. And that turns out ot be a mouse’s squeak of a ‘part’-deferral of interest payments for up to two years.

Which might be fine for those with interest only payment policies, but may be a tiny sum for many others.

And then it seems only one in ten would be helped at all by the final proposals…

Smoke and mirrors anyone?

Still it has all successfully hidden the laws for totally random stop and prove identity to be given to the police. And that one about lie detector tests for benefit claimants.

Er… will that be some miracle test that is reliable that we have never heard about, and will the identity proof turn out to be only these dodgy identity cards that Gordon loves so much?

Ah well, you don’t want to know about that anyway. But make sure you read the small print if you feel you would like some of this help with your mortgage.

Unless you want billions, in which case Gordon will mortgage you and I and several generations of our dependents, I suspect this tuppenny-halfp’ny aid on mortgages will come with chains…

Good luck.

Joseph Harris

Debt Control Man

 
 

 

Card Firms Giveth, Card Firms Taketh Away

November 28, 2008
How is it, that when I saw Peter Mandelson was involved, I started looking for the catch?
Our Business Secretary with Gareth Thomas, Consumer Affairs Minister, held a meeting with credit card companies [not sure who came, but I’m looking!] to get more time for debtors to organise their affairs. The target was described as ‘breathing space’. http://uk.reuters.com/article/personalFinanceNews
Now I am not even sure how that fits with the information that the reason for the meeting was to express concerns to the representatives about the high level of interest rates charged on credit and store cards.

And a joint statement declares: ‘…the … industry would report back in two weeks’ time [sic – note superfluous “…’ time…”] on a set of fair principles to help card borrowers to manage their debts… [my italics and my disgust!].

I’m not asking you to share my despairing feelings about the poor grammar from senior members of the government, but I am asking you to note how debtors will be hurt, not helped, by all this.

Bear in mind the Consumer Credit Licence, the Consumer Protection Regulations 2008 and the Banking Code all give much better protection than a set time. Not to mention the directives of the European Union Commission – of which Lord Mandelson was, until recently, a Commissioner. Is he with the people or with business?

AND let us be quite clear, this is an attempt to steal the right to represent oneself. An attempt to breach ancient British law.

The new dictatorial requirement will be that ‘…customers in difficulty would now get 30 days grace … IF [my emphasis] a debt advice agency was [not “is”, note] helping … a repayment plan…’. Further in this from this arrogant group ‘… could be [my emphasis] extended for a further 30 days subject to demonstratable progress being made…’.

My own experience is that I have negotiated for myself with 11 companies, and none of these negotiations were completed inside the incredibly restrictive 60 days of this great gift from the keen brain of the Lord Mandelson. In fact I have four negotiations which are taking over 18 months.

Who is to judge, in the terms of this carve-up, what is demonstrable progress. In negotiation one is in a starting position of disagreement, and the idea that one side or the other may be an arbitrator is nonsensical and dictatorial.

And, by the way, what about the role of the Financial Ombudsman Service which this undercuts in the most destructive way – certainly from a debtors’ point of view.

And the industry has ‘…agreed to look at [my italics] its practice of risk-based re-pricing…’. Readers of this blog will know I wrote a series of articles many weeks back on the disgusting level of interest rates. That the government has only just paid attention to we ordinary people who are truly hurting shows how little regard it has for us.

A government spokesman is reported to have said the government is ‘unhappy’ about ‘increases of up to 10 per cent OR MORE [my emphasis]’.

Well, I don’t know about you, but I want a government that is raging angry about such profiteering and instead of inviting the sector to make the debtor’s position worse is prepared to actually make them obey the existing regulations.

That the negotiations appear to be set on limiting our options, and not improving them is worrying to say the least.

Are we truly in the middle of the new Feudalism, my fellow serfs?

Joseph Harris

Debt Control Man

debtcontrolman.wordpress.com

 

 

 

 

 

Negotiating With Creditors for Changes in Terms and Loan and Debt Schedules – 3

September 22, 2008

‘Terms’ covers a multitude of sins. It is really a reference to the small print. Bear in mind that there has been no real negotiation in setting up the loan. There is a take it or leave it view about this.

Among the things that are in the terms are ones about the creditor making changes without your agreement. This probably is in legal gobbledegook and covers almost every condition in the contract. Were I to face the need to argue any of this I would almost certainly look for the force majeure argument to be a major defence.

It really is part of the fair treatment argument, and thee are several areas where I am itching to get public debate started. But this will be after I have produced a good help for all those with debt worries.

In that situation you have almost certainly been charged unreasonably high interest rates. I am putting ‘unreasonably’, but the creditor would obviously argue the opposite. Yet if your rate has been increased and you phone to ask for it to be put down again it is almost certain that there will be some movement in your favour.

Even if you do not have debt worries and your credit rating has not changed it is likely that your interest rate has been increased. Bank of England interest rate has been at or below 5% for months, or longer! I can see a strong case for a rate of 8%, 10% – at a pinch 12%. But tell me if you can how 15%, 18%, 22%, 29% and even 40% can be justified.

With these rates i am making reference only to the big name banks, credit institutions and loan companies. I abhor, but am not here dealing directly with, the Mail Order companies that charge interest at all. as for those which charge a point below 30% and 40% I have no polite words.

And I am not directly talking of the appalling of the outfits like the Money Shop that charge rates northward of 100% p.a.; I have heard there are ‘payday’ loans that work out at up to 600%. For any rate that is above 20% I declare the regulators are asleep at the wheel. Indeed I would want enquiries into any rate that is more than 5% above Bank Rate.

So there are my markers. Interest rates are not simple, and confusion is deliberately employed. It is relatively simple to ensure that complex methods are simply not permitted. I know of no reason for having them.

Be absolutely clear that interest means you pay back to the creditor more than you originally borrowed. The higher the interest rate the more you pay back. In some cases, where the repayment sum is low and the interest rate not low, the debt can continue for ever!

If you do not understand interest rates believe me that a lot of people do not. If you are one you are not alone. Then seek advice. All the charities will be pleased to work out for you how you are placed with your own debt.

So do not accept that you must suffer unreasonable interest rates. You may have to argue it all the way to the Financial Ombudsman Service, but I hope that any creditor guilty of charging unreasonable rates will have their licence revoked, however big they are.

Joseph Harris
Debt Control Man

Debt, PMs, Chancellors and Interest

September 3, 2008

If you hang a round in your job too long your mistakes come back to haunt you. That must be what Gordon Brown has been learning!
Unravelling them—specially when the luck turns against you—can be not just daunting, but reveal weaknesses in the thinking. Just so, in my opinion, with our Dear Leader.
That weakness was initially revealed in 1997 when, as Chancellor, he virtually destroyed the regulatory system for the finance sector and the banks. It is a matter of personal satisfaction that I recognised his mistake then. Now we are all paying the price for the excesses that has permitted.
As Prime Minister the millstone of that financial policy is even more firmly round his neck. And, just as the publicity machine was building up to his big announcement on mortgages two more blows struck!
First his new Chancellor and long time helper, Alistair Darling, revealed an attractive attachment to honesty, explaining that the crisis before the world is certainly the most severe for 60 years—i.e. Since we all started picking ourselves up after WWII. The PM has been strenuously denying this truth. The Chancellor’s view was widely misinterpreted as applying to only this country.
And no sooner were the words of the PMs package of ‘help’ out of his mouth than the OECD, a very powerful voice in world economics, declared this country worst placed to handle the downturn—to be rather mealy-mouthed about the crisis ahead.
For reasons which escape me—except that GB’s luck has turned—the further OECD point, that the Eurozone was almost equally affected, escaped mention and seemed not to impact the foreign exchanges where the proud pound was further humbled.
The package itself shows further the inability of the PM to grasp the needs of starting to bale out, just as he didn’t take care to see there was balance in the markets 11 years ago. His moves are a costly way to bring help to a few people, and are largely not very effective in altering the slide in house activity, prices or rising debt problems.
Had there been serious thought about the most effective moves to ease and stabilise Britain’s financial woes, and I mean mostly those of the ordinary people upon whom the modern economy depends, his attention would have been on interest rates.
I have written at length in this blog, and have set up a page on my critique of interest rates and what we should all be doing about it. What he should have done about it is to give the increasingly more aware regulators [the FSA, the OFT] the power to control interest rates and demand a reduction in the rates charged by banks and credit card companies through those powers.
That would actually have cost the country rather less for a far more effective contribution to the difficult process of stabilisation and the rebuilding that will have to follow.
Being Gordon, however, he will be looking round for another grand gesture, another risk-taking bank to save, and be committing another £100bn to the bottomless pit that is The City.

Joseph Harris
Debt Control Man

The Interest Rate Puzzle

August 13, 2008

The indication by the Bank of England, that Bank Rate will be unchanged tomorrow, could be good, bad or unimportant to you. Which way it should go is a matter of opinion. I believe the threat of inflation has been completely underestimated and the depth of sickness of the economy not understood.

Perhaps you need a long memory to even fear big trouble, or perhaps pessimism informs me more than facts. My underlying advice is, however, hold on to your hat; there are strong winds coming.

Because of this I think it vitally important to understand what is happening in interest rates and to make the appropriate protest—I have already written five posts on that and gathered them into a page on this blog.

But if Bank rate has not moved for some weeks why are Credit Card companies in particular pushing rates up, even for their best customers? Might it be to get customers to pay for the banks own mistakes in gambling on investments?

Just opportunism, perhaps? Or perhaps the old yachts are worn out…

But enough of my sarcasm…

What I am really concerned about is the difference between Bank Rate and the interest rate charged on credit cards. Even if we add the inflation that affects banks, ‘headline’ inflation now around four per cent, that still doesn’t make 10% and hasn’t for a long time.

Apart from the few cards that add only five or six per cent, and they do have costs and need to make some profit, the general view has seemed to be that an addon around 10% is a generous minimum. Perhaps with the odd low rate for some part of the loan or a nought per cent transfer period that can be justified. Perhaps.

But what of the card that shot its rate from around 19% to around 30%? Had headline inflation moved 10%—or the Bank Rate?

Of course not. But losses had started appearing; strains of various types. You may have noticed your card(s) taken over by a bank, or taking over another card. That has been going on for about three years, and now with increasing frenzy as one wonders how many card funders there will be in a couple of years.

Like every other finance area the rules for lending became sloppy, the assumption of ever increasing growth a mantra. And why not? Didn’t Gordon—our very own Prudence—have everything under control. [At this time there are no prizes for the answer. Hands up those who realised in 1997, when he destroyed the regulatory framework, what must happen!]

The interest rate movements are by no means limited to credit cards, and there has been movement that it would be hard to justify in many other areas. The mail order catalogues have long made me wonder. Not so many years ago most did not charge interest to customers at all.

Those that did had an incredible rate of 29.9%, and that appeared to follow the earlier consumer credit system of hire purchase. Now hardly a catalogue has not made the main company a credit company with rates of 29.9%; one charged an absolutely horrendous 39.9%.

Now I see another, that long offered 29.9%, has joined these Olympian heights with a rate of just below 40%.

And that has a great deal to do with debt experience; 29.9% is like adding one third to the bill, depending on what type of loan we are referring to. Which means more of your hard earned money goes to the company and getting out of debt and avoiding default become harder and harder.

If you are subjected to an increase in your rate which you do not think is justified please contact the company and ask for the rate to be reduced, or to explain to you in writing, with justification, what the increase represents.

You might be pleasantly surprised.

Joseph Harris
Debt Control Man

Dealing With Creditors

August 12, 2008

Normally dealing with a debt is straightforward. You borrow money, agree a payback schedule and keep to that schedule. Everybody is happy and normally—if your creditor is one of the banks or credit card suppliers—you get phoned from time to time with offers of more money at special terms, including periods at 0% credit.

Who can resist—and don’t they love you when you say ‘yes’!

But when you tell them there is a problem or miss a payment or two how that changes. Suddenly you are besieged with hostility and suspicion. Your character credit becomes zero, never mind about your credit rating.

Not all companies are like that. Some show the greatest sympathy and helpfulness; others take a bit of pushing to meet you where you are now, rather than where you were.

But far too many decide it is open season on debtors and you are subjected to all sorts of threats, phone calls and horribly officious-looking letters. And whatever you say or write seems to be brushed aside.

And when you phone, or are phoned, you rarely speak to the same person, and sometimes not even with the same call centre. Every time you are invited to repeat all your submission to them and each time there is a promise to put it on the computer.

You have no idea what they might put on the computer, of course.

So, if you follow my advice, you write letters. And then, often as not, any reply ignores most of what you have written. You do have to persevere.

There are rules that the creditors must follow. And they are a lot more in your favour than creditors would like you to know. The rules are contained in law, regulation, licence and code.

Remember this next time there is one of those phone calls or letters.

Joseph Harris
Debt Control Man

Interest Rate Action – And Don’t Forget Your MP

August 5, 2008

The Legislators And Others

To really get some action on all this and to start a real scrutiny of the behaviour of the credit industry we need to stir a lot of people up. This includes the people we elect to parliament, the bodies active in the field of relations between companies and customers, such as Citizens’ Advice, and special interest groups such as Age Concern, Mind and those other countless organisations that do so much to help people at a disadvantage. The regulators I have dealt with in the previous Interest Rate Action articles.

Most of these will be those that you think can make a difference, or already have contact with, or have long thought you ought to have contact with. And they will want to have a fairly clear idea of the nature of the problem and how it affects you and what you think it affects many others. In other words why they should spend some of their hard-pressed time on it.

In this group I think you are best placed to work our how and who to contact and to sort out their address.

I will here only offer a few words of advice about contacting your Member of Parliament. Now although we like to be rude about them and may have views about some activities, I believe it is true to say that practically all MPs are conscientious and concerned to help constituents.

But they are busy people and concerned with the whole gamut of legislation. So it is important to offer as much clarity as possible in writing to them.

It is also true that most of the legislation they are involved in passing has large elements of rubber stamping EU directives. Whatever your opinion here it happens that the EU is a motor for more fair legislation and regulation. So in our matter of over-high interest rates this works for us!

Just now of course there is high activity and diversion for MPs in England and Wales as the Labour MPs wonder is they can hold on to their seats, and Tory MPs joust for potential office; LibDems have equally busy calculations and preparations to make and worries of being squeezed.

All good grist to our mills as they will be concerned to gather in votes with popular and not politically contentious activity.

Address them by name if you know it, or

To the MP for …….. Constituency
House of Commons
London SW1

And if you don’t know your constituency contact the council or the local paper.

If my chief purpose was this campaign I could go on with address after address to contact to make this matter high on the public agenda.

But I am interested in helping people already facing debt disaster. In this particular matter of suddenly higher interest rate charges and unmerited fines and penalties, my concern is to stop people being pushed into disaster by unfair, unreasonable and immoral behaviour.

Joseph Harris
Debt Control Man

Interest Rate Action 3 of 3 – Complain

August 3, 2008

Financial Services Authority (FSA)

The FSA has considerable powers in the financial world, and as the eight recent arrests to do with insider information trading shows does bite as well as bark. While for immediate consumer/company relationships the OFT is the main regulator, the FSA is more concerned with the policies and how the policies are employed.

In my opinion if the FSA is made aware of the imposition of vastly increased interest rates on customers who have done nothing to merit any change at all it will examine the companies acting in this way in fairly minute detail; my euphemism for possibly threatening them with major legal action. My opinion let me make clear.

To bring that about the FSA must receive a lot of letters complaining about the practice so it both knows it is widespread and can see which companies are engaged in this unfair practice.

So why should this body help our cause in getting sensible interest rate limits set? Well, in its High Level Standards, the FSA has some clear pointers as to the attitudes a company should have.

For example no.6 says ‘A firm must pay due regard to the interests of its customers and
treat them fairly.’ No equivocation. Notice again that word fairly.

Seven talks of communication and that it must do this and in a way that is ‘clear, fair and not misleading.’ The next standard tells the company to ‘manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.’ No excuse for not being aware of the effects of an action in its customers!

No.9 is very interesting. Although it may be mostly aimed at the investment arms of banks it nonetheless is a clear message for all the activities of these institutions. Here is the whole sentence: A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.

There is also the FSA’s Statements of Principle and Code of Practice for Approved Persons. Just glance at some of the expectations in the seven statements of principle.

‘An approved person must act with’
-integrity;
-due skill, care and diligence;
-take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively; and
-must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant requirements and standards of the regulatory system.

So the letter needs to be very similar to the one to the OFT, but this time we are challenging the way in which the business is run in relation to the duties in forming and carrying out policies. Once again the question of fairness plays a big part, but here we can also ask if due care is being exercised, if the interests of customers are being fairly assessed and acted upon and if the decisions that have brought this about are within the expectations for an approved person.

You should write to them at:

Financial Services Authority
25 The North Colonnade,
Canary Wharf,
London E14 5HS

Joseph Harris
Debt Control Man