The new code of practice has been introduced by the Finance & Leasing Association, a credit trade body Wonga is signed up to although it should be noted that Wonga are the ONLY payday lender affiliated to the FLA.

8 of the 10 largest payday lenders are actually signed up with the Consumer Finance Association and they will be making similar adjustments to their own code of practice within the next few months.

“As an industry, we are looking at various measures including limits on number of rollovers, how we treat individuals that get into trouble, transparency in advertising and clear consequences for non-compliance with the code. We anticipate the launch of our enhanced code in the spring,” the CFA said today in a statement.

The move was widely expected with the Office of Fair Trading curently reviewing both the charges and the practices of the payday loan industry and have already made noises about not being happy with the practice of allowing loans to be rolled over indefinitely. The industry hopes to preempt the calls for legislation by showing the government they have their house in order.

Despite the fact Wonga are the dearest payday lender currently operating in the UK (see our payday comparison chart), they are also one of the most successful but their critics claim that success is built on day time tv ads which target the unemployed or stay at home moms. We reported only recently how Wonga had come under fire for targeting students and had been forced to remove several promotional pages from their website as a consequence.

Wonga currently charge £36.72 for a £100 loan over a 1 month period compared to just £20 charges for the same loan from Quick Quid. If a customer wishes to rollover the Wonga loan into another month they will be asked to pay the charges already incurred and then the £36.72 is added to the loan amount again and becomes due at the end of the next month.

As you can see, if the loan is rolled over 3 times the customer will have paid just over £110 in interest and charges – more than the amount borrowed and just £10 short of double the amount you would have paid with the same loan from Quick Quid. It is this build up of charges that critics claim have forced some vulnerable consumers into out of control debt.

With The Household Income Tracker today releasing a report claiming 25% of consumers who took out some form of payday loan in Northern Ireland failed to make the repayment on time, the pressure is mounting on the industry to voluntarily change some of their practices – or have them changed for them with new legislation.

In this video she also seems to have changed her stance on demanding an interest rate cap. The MP for Walthamstow says she now wants a total cost cap – a limit on the total cost including interest, admin, transfer charges etc.

We’ve been saying for months that a cap at around £25 per £100 borrowed per month would be a far better system rather than dealing with the APR which doesn’t make any sense when applied to these short term loans.

One thing missing from the video is any talk of an alternative form of credit for all those constituents that actually find the services of payday lenders useful when wanting to avoid going into the red and being hit with ridiculous overdraft charges and I suppose as she is no longer wanting to ban payday loans, she doesn’t have to offer one.

The offending web page had suggested student loans could encourage the people using them to live beyond their means while a Wonga payday loan could be useful to students who found themselves short and in a financial emergency.

The NUS vice president Pete Mercer took serious offence after seeing the web page at Wonga and before it was removed told the BBC:

“It is highly irresponsible of any company to suggest to students that high-cost short-term loans be a part of their everyday financial planning.”

“Students should think long and hard before choosing payday loans over any other form of borrowing, including government-backed student loans. If students are struggling to make ends meet there is often other support available, and anyone worried about their finances should talk to their students’ union or financial advisers at their university.

“Wonga should immediately withdraw this predatory offer, which contains information that appears to be inaccurate, and is aimed at financially vulnerable young people.”  Source

As you need to have a regular income to qualify for a Wonga payday loan it is difficult to see how a full time student at university would be able to get one anyway but by targeting students Wonga have scored an own goal by leaving themselves wide open to claims of irresponsible lending.

The Office of Fair Trading has made it clear that any payday lender that gives loans to someone who will obviously struggle to meet the repayment would be considered as an irresponsible lender and clearly offering payday loans to students would fall in that bracket.

Despite its popularity (mainly thanks to its aggressive marketing campaign) Wonga is the most expensive lender we have yet to review – read our Wonga review. They charge a whopping £36.72 per £100 borrowed for 28 days. That’s almost double the cost of a payday loan from Quick Quid – read our Quick Quid review.

They did receive 2 stars from a possible 5 because they paid out so quickly but there are now many payday lenders who will transfer your money into your bank account within the hour and almost all will have the money in your account on the same day. See our payday comparison table to see just what each of the main lenders has to offer and why we don’t recommend Wonga.

Payday loans are designed for emergencies and should only be used as such. They are not suitable for students or anyone else without a fixed income.

Unlike the few original shops, these new stores aren’t hidden away down back lanes and off streets either. Taking advantage of the falling rents and empty store fronts these entrepreneurs are grabbing high street locations in prominent parts of the city.

Thanks to the new taxes imposed as part of the Greek Governments austerity measures these new pawnbrokers are thriving as the cash strapped Greeks look for ways to free up the cash tied up in their yachts, gold jewellery and property.

Many of the established jewellers in the city are now jumping on the gravy train with ‘cash for gold’ signs showing up in lots of their store windows. They started competing with the pawnbrokers when it emerged as many as 8 out of 10 Greeks using pawn shops actually wanted to sell their valuables outright rather than use them as security for a short term loan.

In their reporting of this story the New York Times quotes Yiannis Spiratos, the manager of a pawnbrokers in the middle of Athens.

“Gold is strong so there’s a lot of interest in selling. We’re just serving that interest.”

Outside his shop, a smartly dressed middle aged woman said she had just sold some earrings and her husband’s gold watch. “He couldn’t do it; he was too embarrassed,” said the woman, who gave her name only as Anna. She said she had made around £1000 from the sale, after visiting four other shops for quotes.

With an increasing number of Greeks considering cashing in their jewellery or family heirlooms, the country’s consumer protection agency recently published guidelines to protect people from unscrupulous dealers. It warns against traders promising particularly high prices and advises consumers to weigh their jewellery at home or to have it assayed at a laboratory run by the national association of goldsmiths. The warning followed a government order for stricter inspections of gold dealers to ensure they are licensed and operating legally.

“The crisis is an opportunity for many, and that’s O.K. as long as it’s legal,” said Nikos Lekkas, the head of inspections at the Financial and Economic Crime Unit of the Ministry of Finance. Source

While the Greek Government are obviously happy people are taking neccessary steps to raise the funds to pay the new taxes they aren’t so happy with the pawnbrokers and jewellers who are buying up all this gold for cash. A recent spot check on those trading in gold found a whopping 80% were guilty of tax evasion – costing the cash starved Government possibly billions of Euros and certainly many millions according to the financial crimes unit.

The police say many are moving large quantities of gold out of the country illegally to avoid taxes and that some are taking what are known to be stolen items of jewellery and quickly having it melted down in one of the 10 foundaries now operating in the Athens area – an increase of 300% in the last 12 months.

A car was stopped recently at the port border control in Patra and was found to be carrying half a ton of silver bars with no paper work. The police traced it to a pawnbrokers in the center of Athens and found the owner had already successfully sent around £5 million worth of gold to Germany to avoid paying taxes on his profit.

James Ward believes online payday lenders are leaving themselves open to future legal problems because of their promise of instant decisions and money transfers.

He told the Independent:

“If it transpires that payday lenders haven’t acted ethically or provided adequate information to borrowers, a deluge of complaints may follow,” he warned. “The legislation that regulates this area is simply not adequate.”

“There is no time to assess whether they should be lending to the borrower at all and this is virtually impossible without a face to face transaction. A vulnerable consumer, desperate for some quick cash will simply tick whatever boxes they need to get it without reading the small print. It is highly doubtful that they will understand the terms of the loan.” Source

A similar argument was recently used in Scotland where the law states a witness must be present for certain contracts. Some MSP’s were hoping to use it as a back door route to banning online payday lenders.

Mr Ward claims the Government should ban payday loan lenders from operating online or at least enforce a 7 day period between the application and the borrower receiving the money which kind of defeats the whole idea of emergency cash loans but then I suspect Mr Ward knows that full well. He also wants to restrict the number of times a loan can be rolled over to prevent the loan from escalating.

Personally I don’t see the difference between answering questions via an online form, on the telephone or walking into a high street money shop. All can be lied to should you be that way inclined and all are able to pay out the loan instantly. If anything, I would expect the online application to be harder to defraud as the credit check is an automated process where as the other methods are open to human error.

Having looked at the various legislations imposed in other parts of the world, the following would be our recommendations for the UK payday industry.

• Scrap the law insisting payday lenders must display their APR and instead show it as a charges per £100
• Cap the charges to a maximum of £25 per £100 borrowed per month
• Restrict continuous payment authority to 1 payment
• Restrict the number of times a loan can be rolled over to 1
• Allow 1 business day cooling off period where the borrower can return the money without charge if they have a change of heart

If the Consumer Finance Association – the trade association representing the interests of online payday lenders – were to implement the above it would certainly preempt any further calls to ban payday loans. Consumer Affairs Minister Ed Davey has already dropped a big hint that he is considering stopping continuous payment authority so why not beat him to it?

In the Autumn we reported how Nationwide had cut its rates to 6.1% in a bid to out do Sainsury’s in the run up to Christmas and now M&S Money have started the new year by cutting its rate to 6% APR, making it the lowest rate offered in the UK for 4 years. This time last year a loan for £10k would have cost you 8.4% APR

Don’t get too excited though, to qualify for this low interest rate you will need to be a UK resident over the age of 30 or be a homeowner. Even then, much will depend on your credit rating and you can expect a higher interest rate if yours isn’t 100% squeeky clean.

As well as meeting the above criteria, the 6% is only on offer for unsecured loans between £7,500 and £15,000 taken out over 1 to 5 years.

Tesco Money reacted yesterday by cutting its rates to 6.1% and it can’t be long before someone drops their rate below the 6% mark – which hasn’t been seen since 2007.

Rates still haven’t dropped for loans around the £5000 mark though and the cheapest we could find was Sainsbury’s Finance at 6.9%. It may actually work out cheaper to borrow more and put yourself in the £7,500 bracket as it may well cost you less overall assuming your credit history is A1 and you qualify for the 6% rate offered by M&S Money of course.

The M&S Money move has caused quite a stir in the industry with many speculating 2012 could be a better year for the consumer thanks to the competition in the loans market and most of that competition is coming from retailers who want to diversify their business further as reported in Which4U.

“Evidently, it is the financial arms of retailers and supermarkets that are leading the way, as they look to diversify on the one hand, and to increase market share through complementary products and measures of price and non price competition on the other. Sainsbury’s have offered lower rates to Nectar Card holders, and credit card deals similarly benefit regular shoppers at their stores.” Source

A total of 7 lenders have cut their rates already since the start of the new year according to MoneyFacts and anyone looking to consolidate their debts will find these rates very tempting but with the rate war sure to heat up and develop on an almost daily basis you must shop around for the best deal you can. Whilst M&S Money lead the way today, it is only a matter of time before another lender decides all the free publicity – not to mention extra business – justifies breaking the 6% barrier.

For those needing a small loan over a much shorter period, the options are definitely limited. In fact we could only find one lender prepared to borrow us £1000 for 6 months and that was the Bank of Ireland. They quoted an interest rate of 29.6% and also wanted another £65 for what they called an arrangement fee.

No wonder payday loans are seeing an increase in business when the banks and other mainstream lenders don’t want to know unless you want to borrow a substantial amount, over a several years AND have a perfect credit record.

Campbell Robb, Shelter’s chief executive, said that payday loans are a “totally unsustainable” way of borrowing – completely ignoring the fact that a good percentage of those 1 million people may well have become a further burden to his charity had they not had a payday lender to turn to.

MoneySavingExpert.com’s Martin Lewis chipped in with “It is incredibly worrying that there is now evidence that people are using payday loans to meet housing costs. While it is an obvious temptation to grasp these loans as a lifeline, in the long run it may hurt more than help.” – Just a shame that no alternative ‘lifeline’ was mentioned or is that because there isn’t one?

The Guardian claimed in their spin on this story that someone in Britain loses their home every 2 minutes and surely that would have been even worse had people not been able to turn to a short term lender?

These attacks on payday lenders were coming thick and fast in the run up to Christmas and I’m sure will continue as Stella Creasy and other MP’s push for interest rate capping or even banning the payday lenders from plying their trade as some SMP’s are trying to do north of the border.

Only a few weeks ago Lord Mitchell wanted the government to protect the ‘vulnerable and gullible’ from payday loans and in the run up to Christmas the Office of Fair Trading said it planned to crack down on hidden charges and unclear interest rates.

The fact is that no one is going to take out a payday loan, an unauthorised overdraft or pawn a family heirloom unless they have no other option and with the banks not interested in handing out personal loans unless you have an A1 credit rating and certainly not to someone in mortgage arrears, most of us using these types of loans just do not have any legal alternative.

It’s all well and good Shelter condemning payday lenders and telling us it is far better to seek debt advice as soon as possible rather than use them but what good is advice when the bank is threatening to repossess if you miss another mortgage payment?

Advice for sure will help if you aren’t in dire straits just yet – it can help with budgeting and prioritising your debts and will warn what you can expect to happen if you continue to fail to meet your financial obligations but it doesn’t help when the wolf is banging away at the door.

People should be careful what they wish for because a ban on payday loans would mean there would be no one to help people get through those tight months when the wages don’t stretch far enough and that would mean repossessions and homelessness on a far bigger scale than we have at the moment.

MP’s wanting to ban payday loans often talk about credit unions as a viable alternative but miss the point that it is middle income earners who are payday lenders biggest customers. People who haven’t had a pay increase for a few years yet continue to see their cost of living spiral out of control.

They talk about capping interest rates yet refuse to accept that it is unfair to use APR when talking about short term loans. It’s a bit like insisting car hire firms have to display the annual cost of hiring a car even though they only rent out short term. Instead of advertising they charge just £40 a day they would have to advertise their rates as £14600 – is that fair and is it even helpful to the consumer who actually just wants to know how much it is going to cost for the week?

Quick Quid for instance have to declare their APR is a whopping 1734% even though it actually costs less than £20 to borrow £100 for a month. If your mate borrowed you £100 for a week until you get paid wouldn’t you buy them a few beers and a fish and chip supper on the way home as a thank you? If you did and even though that seems perfectly reasonable to you, me and your mate, he would actually be charging a far higher APR than any of the payday lenders operating in the UK today.

The press release from Shelter would have carried far more weight had it given a genuine alternative to the folk who find themselves without enough money to make this months mortgage payment or rent instead of just telling them to “seek advice.”

Stella Creasy and anyone else who wants to ban payday loans – what’s your alternative for us next time we get a red letter and are caught short, should we all declare bankruptcy or go on benefits perhaps and become a burden to the state?

They charge £29 in interest for each £100 you borrow which is £4 dearer than Payday Kong or Payday Bank and a whopping £9 more than Quick Quid. Even so, 29% does make them slighter cheaper than some lenders including Wonga and Pounds2Day.

A nice touch is that if your next payday falls within 7 days of you taking out the loan, they don’t settle the debt until your next payday and they don’t add the extra interest on.

PaydayUK claim to have your money in your bank account by midnight as long as you apply before half 3pm and the loan is approved by 5pm.

To qualify for A PaydayUK loan you will need to be 18 or over, be in full time work, have a take home salary of £750 or more which is paid monthly into your bank account and you must have a debit card associated with that account.

The application process appeared to be quick and easy and we didn’t need to fax or post any further documents to them. Once the initial form is filled in and submitted it took around a minute for us to be told we had been approved.

At this point PaydayUK told us how much we could borrow which they base on your earnings and present expenses. If you accept the loan offer you then give your bank account details so they can send the money and your debit card details so they can collect the debt on the agreed date.

The loan agreement was signed online so the whole process took less than 5 minutes and as promised there were no admin fees, bank transfer charges or any other hidden fees some payday lenders like to spring on you after you have accepted the loan.

Our PaydayUK Review

PaydayUK is a member of the Consumer Finance Association and as such follow a code of practice that includes responsible lending. Some may not like the fact that PaydayUK decides how much you can borrow rather than you applying for the amount you want but by doing so they are attempting to make sure you can comfortably repay the loan without going short next month. You can of course borrow less than they offer should you not require the full amount.

PaydayUK do use the credit bureaus so if you settle the debt on time it will be noted on your file which can help to repair a poor credit history but should you fail to repay on the agreed date, that too will make it onto your credit file and so will damage your file. Bottom line – be sure you can make the repayment on time.

All in all PaydayUK offer a good service but nothing out of the ordinary that makes them stand out from the crowd. They aren’t the cheapest but neither are they the most expensive. They don’t get the money into your bank account within the hour like some lenders but they do try to get it into your account the same day unlike some.

The £29 per £100 charges prevents PaydayUK getting anything more than 3 stars. At £9 dearer than Quick Quid and the fact that Quick Quid transfer your money within 15 minutes means PaydayUK fall well short of our current #1 recommendation.

See our payday loan comparison chart to see how PaydayUK stand up to the competition.

At the time of writing the top 3 results in Google uk for the search term ‘payday loans‘ are all registered to individuals rather than to government registered and approved loan companies.

The #1 result – paydayloans.org.uk – is registered to a Czech woman living in Prague while result numbers 2 and 3 – dcloans.co.uk and nadineloans.co.uk – are both registered to a UK individual living in Bournemouth. All 3 are dubious at best and at worse, probably breaking a few trading laws.

Lets take a look at why you should never enter such personal details as your bank account number and date of birth into an online loan application form without first checking out whether the web site asking for the info is both legitimate and safe.

PaydayLoans.org.uk

At first glance this looks a professional, genuine payday lender but a closer inspection raises several alarm bells. At the bottom of each page there are 4 images designed to give subliminal social proof that the business is genuine.

The ‘as seen on channel 4′ image is fake and links to a debt site, as does the water charity image. The ‘proud supporters of Kiva’ image does link to Kiva but there is no mention of PaydayLoans.org.uk in Kiva’s list of partners.

The image that rings the alarm bell the loudest though is the security image from Comodo which you are granted permission to display on your web site when you purchase a security certificate from Comodo which protects personal information that is submitted via online forms on your web site – Its a fake.

The site has no security certificate, if it did you would be able to view the site using https:// instead of just http://

Other things to worry about are the lack of a postal address, no phone number, no Consumer Credit License number on display and no company registration details but then why would there be when the site is owned by a girl living in a block of flats somewhere in Prague?

At best and the most likely outcome is that your information is being sold to 3rd party companies and you can look forward to being bombarded with phone calls and junk mail for debt recovery programs, at worst you are risking id theft.

dcLoans.co.uk and NadineLoans.co.uk

Both owned by the same individual and again it looks like these also sell on your details to a 3rd party.

Apart from the bad spelling showing a lack of professionalism, other reasons not to apply for online payday loans from web sites like these two include:

• No address or phone number
• No about us page
• No business license numbers
• No credit license
• No contact form

NadineLoans.co.uk does have an ‘about us’ page but it has nothing about them as a business entity apart from it states:

“All the information you submit is secure. We are professional financial advisers working in the UK and USA so you can rest assured that we will do our best to provide you the best and cheapest loan.”

It doesn’t have a security certificate so information you submit to their web site is NOT secure and the site is registered to an individual rather than a company so I very much doubt they are financial advisers either.

Neither the NadineLoans.co.uk or dcLoans.co.uk web site is displaying a representative APR percentage which is illegal.

The online payday loans industry is plagued by web sites like those mentioned above and its one of the main reasons genuine payday lenders come under fire from MP’s like Stella Creasy.

Usually it is simply a case of someone selling on your details to actual lenders but a worse case scenario could see your bank account emptied come payday or you become a victim of identity theft and your details are used to rack up other lines of credit.

How To Protect Yourself When Applying For Online Payday Loans

Because the above sites aren’t the actual lender they don’t need a Consumer Credit License so they don’t have to stick to the rules. Hence the bold statements like ’96% approval rate’ and ‘no credit checks’ but these are only designed to convince you to fill in the forms with your details and they simply are not true. The lenders they pass your details to will do a credit check and industry average approval rate for payday loans is around 10%.

The old saying that if it sounds too good it probably is definitely holds true here.

Make sure any online payday lender you are considering applying to is showing their Consumer Credit Licence on the web site and if you have never heard of them you can check the consumer credit register here to make sure the license is genuine or hasn’t been revoked due to consumer complaints.

As well as their consumer credit license most genuine lenders will also list their company registration number, postal address and even data protection act number in plain view. Check the bottom of the home page or the about us page.

Many of the genuine payday lenders such as Quick Quid are members of the Consumer Finance Association which means they have agreed to abide by a code of conduct designed to protect the consumer. For example, making sure an applicant can comfortably settle the debt without hardship.

When on an application page – the page where you enter your details – the url in your address bar should always be https rather than just http. The https means your details are encrypted and cannot be seen or stolen by anyone.

Stick with the payday lenders who advertise on TV because these will all be genuine licensed lenders. See our payday lender comparison chart for a selection of genuine online payday loans on offer.

For example, Albermarle & Bond – Britain’s largest pawnbroker – plans to take on a further 300 staff members and open at least 25 new pawn shops up and down the country in 2012.

The up market London pawbroker Borro say their client base tend to be bankers who have seen bonuses they were depending on cut and entrepreneurs who can no longer get loans from banks, angels, dragons and other sources they have traditionally been able to rely on for their funding.

Paul Aitken founded Borro just 4 years ago and saw his client base double and average loan size treble in 2011 and with similar growth expected in 2012, no wonder the industry is saying next year will be the dawn of the pawnbroker age.

Borro offer loans from £1000 to £1 million secured on an item or collection of items of value. Expect to pay 39% in interest for a loan of £1 million and up to 69% for loans under £10,000

The items of value used as security include Rolexes, fine wines, Ferraris, diamonds and fine art. Aitkin says that as well as the usual items his vaults are currently also holding a couple of rare Fender guitars, a pair of Ivor Novello awards and a Henry Moore sculpture.

His single biggest loan of 2011 was for £1 million secured on a private art collection.

Defaults at Borro are currently running at 11% and for those who don’t return to settle their debt, their items are auctioned off.

2011 saw Albermarle & Bond branch into the cash for gold market which added to their growth. In the companies AGM statement for the 4 months ending in October they said:

“During this most recent period demand for short term cash has remained high, and with a strong gold price, the group’s services enabling customers to access good value loans by pawning gold jewellery and realise cash by selling unwanted gold jewellery have continued to grow.”

While we don’t recommend selling your gold jewellery for cash as you will only get the scrap value, a pawnbroker is an option you ought to consider if you need to raise some emergency funds and of course, you have something of value to use as security.

Most pawnbrokers will give you a much better deal than you will get from a money shop or online payday lender and you will get 6 months to pay it back – no monthly repayment plan, just repay the loan with the agreed acrued interest any time within 6 months and pick up your valuables. The earlier you settle the debt, the less interest you will pay.

As we enter the age of the pawnbroker we can expect other new start ups jumping on the gravy train just as they have done with payday loans. More pawnbrokers competing for business is good for the consumer though so shop around, don’t just take the first offer you are made. Each pawnbroker you visit will probably make you a different offer so we recommend you visit at least 3.

Source: Telegraph