Q&A: Payday loans

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Payday lenders have faced criticism from all angles in recent months.

Insolvency experts predict that more people who are short of money are going to turn to payday lenders – who can be found on the High Street and the internet – for a short-term loan.

Some debt charities and consumer groups have warned that such lenders can lure the unwary into taking on debt that balloons out of control.

An official study in 2010 said they provided a legitimate, useful, service that helped to cover a gap in the market.

But in early 2013, the Office of Fair Trading said that there was widespread irresponsible lending in the industry.

How do payday loans work?

Typically someone will borrow a few hundred pounds from a payday loan firm for a short time, to tide them over until they receive their next wage or salary cheque.

The borrower will usually offer a post-dated cheque to the lender to cover the eventual repayment of the money borrowed, plus interest.

The cash is often emergency borrowing to pay an urgent unexpected bill, or rent or utility bills.

How many people use them?

There are no official figures on how many people use this sort of borrowing.

But Consumer Focus estimated last year that 1.2 million people took out 4.1 million loans in 2009.

In 2008, £900m was was taken out in the form of payday loans, according to the Office of Fair Trading in a formal review of all “high-cost” credit businesses in 2010.

But it said the value of the loans was growing rapidly.

As a result of its most recent inquiries, which led to an interim report in November 2012, the OFT thinks that as much as £1.8bn a year may now be being lent by payday lenders.

The Public Accounts Committee (PAC) said that about two million people in the UK used payday loans.

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Citizens Advice finds payday sector “out of control”

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A debt advice organisation has claimed that payday loan companies are lending to under 18s, people with mental health issues and individuals who were drunk at the time.

Citizens Advice said its analysis of 780 cases reported to it between 26 November and 13 May 2013 revealed evidence of “inadequate” checks on borrowers, with people chased for debts when the loan had been taken out by someone else using their identity.

It found that three out of four people, or 1,539 cases, struggled to repay the loan, with 84% saying that lenders did not offer to freeze interest rates or charges despite saying that they would do so.

During the six month period, 24,575 people went to Citizens Advice to seek advice about payday loans.

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Insolvencies rising among women

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An astonishing rise in insolvencies among women in England and Wales will see their financial failure rate overtake men for the first time, new research has found.

The Debt Advice Foundation said women accounted for 49% of personal insolvencies in 2011, up from 30% a decade previously.

The charity said analysis of trends in Insolvency Service data revealed that rate would remain broadly equal in 2012, with women projected to outstrip their male counterparts in 2013.

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One in five shops could close by 2018, warns study

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The Centre for Retail Research (CRR) is warning that High Streets could see 20% of their shops close down within five years as more people turn to the internet for their shopping.

The organisation, which conducts research into retail, technology and crime, says this would equate to 62,000 shops closing down.

The CRR believes large areas of the UK’s High Streets would become housing.

It also says as many as 316,000 workers would lose their jobs.

The CRR says online shopping will continue to expand and the proportion of shopping done via the internet will double to 22%.

The report, which was produced by Prof Joshua Bamfield, said the first shops to go would be pharmacies and health and beauty stores.

Retailers specialising in music, books, cards, stationery and gifts will be next.

DIY shops will also suffer.

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‘Pensions liberation’ company on brink of insolvency

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A company which offers to unlock pensions for a fee – is on the brink of a formal insolvency arrangement.

Freedom Capital Partners Limited is poised to enter a Company Voluntary Liquidation (CVL) on 11 June, subject to a creditors meeting, Insolvency News can reveal.

Freedom Capital Partners has been the subject of significant press interest following allegations of high transfer fees for permitting pension scheme holders early access to their fund.

Taking money from a pension before age of 55 remains subject to a tax charge of 55% as it is deemed an ‘unauthorised payment’.

Today, a spokesman for insolvency firm CMB Partnership confirmed it is preparing documents with a view to a CVLbeing passed at the meeting of creditors at 23 Ely Place, London on 11 June.

The news comes just days after the City of London police announced that it had arrested three people and seized computers and documents from a call centre in relation to pension liberation activity. Police Scotland and SOCA also confirmed two arrests in Ayr and Glasgow.

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Record numbers of empty shops

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Empty shops in the UK high streets and shopping centres now account for 11.9% of all sites – the highest since records began.

The figures for April 2013 are up from 10.9% in January when the last survey was conducted for the British Retail Consortium (BRC) in January.

Retailer insolvencies which left gaping holes in the UK’s shopping centres led to a drop in footfall of 3% in April, while high streets witnessed a sharp increase in shopper numbers – up 3.4%.

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Fall in ATOL failures lifts travel fund

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The Air Travel Trust (ATT) – a fund used to meet costs when an airline goes bust – has returned to surplus for the first time since 1996, after a fall in ATOL failures.

The annual report details that the ATT received £48.1m inATOL protection contributions from 19.2m passengers for the year ending 31 March 2013, up from 17.3m passengers during 2011/2012.

Roger Mountford, chair of ATT, said: “The relatively low number of ATOL holder failures shows how well the travel industry performed last year, despite challenging financial circumstances.

“This more stable period for the industry has resulted in the ATT’s welcome return to surplus – consumers now enjoy greater protection for their holidays.”

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The 1 Thing a Business Leader Must Do to Succeed

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Sadly, 25% of businesses fail within their first year and an astonishing 70% of businesses fail within ten years. So, if you’re thinking about starting a business or you’ve recently made the leap, how can you optimize your chances of success? What is the single most important factor in determining your success? This question was asked of 10 successful business leaders from the Young Entrepreneur Council.


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Dr Vince Cable gives his view on the insolvency profession

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The importance of the insolvency industry has been highlighted in recent months, following the failure of several high profile companies in the UK. The responsibility to make sure that companies were rescued where possible, and those that became insolvent fulfilled their obligations to their creditors and consumers, fell upon insolvency practitioners (IPs). IPs had to carry out this work in the full glare of public scrutiny and deliver what were sometimes difficult results.
This and other less high profile, but nevertheless essential, work carried out by IPs is not easy. The work of the insolvency industry has never been more crucial than it is now, as businesses face a very difficult business environment.
The UK has become one of the key jurisdictions in the world for business rescue, as is reflected by consistently being in the World Bank’s top ten ranking of countries to resolve insolvency. The strength of our insolvency regime is a positive for UK Plc.
The Government, through The Insolvency Service, is always considering ways to make the insolvency regime even more robust. We win disqualifications against around 100 rogue directors every month. Every disqualified director represents a £85,000 saving made from preventing future financial harm to the public.
The efficiency with which practitioners turn around detailed D1 reports should also be noted. In a profession with 1,700 members, there will obviously be a variation in the quality of these reports but The Insolvency Service continues to work withh practitioners to spread good practice and improve the quality of these reports. The evidence they provide forms the basis of every investigation carried out by The Insolvency Service that ends in an eventual disqualification.
None of this essential work would be possible without IPs.
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UK unemployment rises to 2.52 million

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UK unemployment has risen to 2.52 million, the Office for National Statistics (ONS) has said.

ONS figures showed 15,000 more people were unemployed in the three months to the end of March, with the unemployment rate now at 7.8%.

Jobseeker’s Allowance claimants fell by 7,300 last month to 1.52 million.

But despite this an ONS spokesman told the BBC the figures suggest the recent period of falling unemployment “seems to have come to an end”.

Growth in average earnings is also slowing, the ONS figures suggest.

Average earnings increased by 0.4% in the year to March, compared with a rate of 0.8% in the previous month.

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