Here Are 6 Saving Tips Nobody Ever Tells You

Here Are 6 Saving Tips Nobody Ever Tells You

You can get investment capital by either taking a loan or saving. Most people today prefer taking loans because it is faster and easier. Saving consistently takes a lot of time, effort, and sacrifice. Although this is usually the case with almost all savers, saving doesn’t have to be a daunting task. There are some secrets you can consider to make saving easier/more fruitful.

1. The magic is in the deals:

Saving is a seemingly slow process when it comes to accumulating money since we never seem to have enough money to save. It is possible to change this by shopping for deals. It would be easier accumulating a lot of money in a short time through saving if you saved a higher percentage of your income so, how do you do it? Well, start by cutting on your expenses by shopping for deals. Many people fail to realise the fact that most expenses aren’t fixed. It is always possible to spend less on food every month if you buy food in bulk. You can also save money on your house rent by moving to a cheaper house. You can also save on transport costs by taking the bus or train instead of your car. Saving isn’t just about putting aside a portion of your income every month. To make significant progress, you need to shop for deals.

2. Automate:

You also need to eliminate complacency to get ahead as a saver, and one of the best ways of doing this is automating the saving process. You should have a standing order on your account to automatically deduct your savings when you receive your salary. Most people aren’t disciplined enough to accumulate savings in their current accounts. To avoid being tempted to spend the money, save automatically before you start spending.

3. Go against the spending wave:

You can get a good deal for a vacation by comparing prices. However, you are better off going for vacation when everyone else is at work. This same principle applies to almost every spending wave. Avoid ”following the crowd”. Participating in spending trends can hurt your saving potential immensely. Even if what you are spending on appears to be discounted, you can always get a better deal when everyone else gets bored with the spending trend. You should spend when everyone else seems broke to enjoy huge savings. For instance, February would be a great time to go for vacation, instead of December. Summer would also be a great time to buy a heating system.

4. Pay cash:

In this era of credit cards and online banking, people hardly pay for anything using cash. Although it is safer and more convenient, you end up spending a lot in fees. If you consider the number of times you run your card in a month, the fees can easily translate to more than a thousand pounds every year. Buying things using loans is also expensive because you pay interest plus fees. Furthermore, businesses extend discounts to cash buyers. Most successful savers don’t buy anything unless they can pay for it in cash.

5. Don’t over save:

Saving is usually unbearable to some people because it is overdone. All successful savers know this. If you want to save consistently for years, you shouldn’t over save at the expense of necessities. You should focus on developing a sustainable saving culture instead of one that leaves you feeling miserable. Shop for deals, go against the spending wave, pay cash and automate your saving process, however, don’t overdo it. Focus on leading a comfortable life as opposed to over saving or leaving beyond your means.

6. Saving:

On its own, won’t get you far: Most people know it’s good to save. However, you won’t get far if you just focus on saving. You should save to invest as opposed to saving to spend. The goal of saving should be accumulating enough money to start an income generating venture. You can use savings for emergency expenses when you don’t want to take out short term loans like payday loans, however, focus on making your savings work for you in the long-term. Get financial education to discover the best ways of using your savings.

What Are The Best And Worst Ways To Use A Loan?

What Are The Best And Worst Ways To Use A Loan?

It’s always advisable to live within your budget, stay away from debt, etc.. However, there are some cases when it’s justifiable to take on debt. Sometimes it’s inevitable to take debt. When you have an emergency expense for instance (such as an unexpected medical or car repair bill), you may be forced to take a payday loan or any other type of short-term loan. It’s a bad idea to take up a loan if you don’t really need one. With that said, let’s get into more detail on the best as well as the worst ways of using a loan.

Best ways of using a loan

1. Starting a business:

It’s highly recommendable to take a loan and start a business. Business loans make the most sense because they are put into one of the most productive loan uses. Provided you prepare a solid business, it’s always a great idea to use your loan to start a business.

2. Debt consolidation:

You can also take a loan to help you manage your debt better. Managing debt can be stressing when you have many loans. Debt consolidation allows you to clear off multiple debts so that you remain with one manageable loan. If your loans have gotten out of hand, it’s a good idea to consolidate as long as you still have the capacity to service the resulting debt.

3. To build your credit score:

You can also take a loan to build your credit score. If you have a bad credit score that needs to be improved fast, taking a loan is a good idea. The benefits of having a good credit score are enormous. As long as you can repay your loan in time, there is nothing wrong with building your credit score by taking loans and repaying them in time. This tip works perfectly with credit card loans/debt.

4. To cater for emergency expenses:

As mentioned above, you can take a loan to cater for emergency expenses. Medical bills, car repair bills, roof repair bills among other kinds of bills may arise when you don’t have money. In such cases, you can take a payday loan among other types of short term loans to cater for those emergencies.

Worst ways of using a loan

Let’s turn to what you shouldn’t do with loan money. Ideally, you shouldn’t take in debt to spend on unnecessary expenses. Although the definition of ”unnecessary” expenses can vary from one person to another, here’s what you need to know.

1. Never take a loan for gambling:

Gambling is very risky. The odds are usually against you. There is nothing wrong with gambling with your own money if you really want to gamble. However, it is not advisable to get into debt because of gambling. In fact, you should avoid taking loans to engage in any activities whose outcome can’t be controlled.

2. Funding luxuries:

You should also avoid loans if you are taking them to fund luxuries i.e. buy the latest furniture, electronics, go for a holiday, buy a second home, buy new clothes/shoes. Most people get into debt because of taking loans to enjoy lifestyles they can’t afford. To avoid this mistake, fund luxuries using your own money. You can take a loan if you already have the money to fund luxuries. For instance, you may be waiting to get paid. Unless you are in such a scenario, avoid debt by all means. If you can’t afford something at any given movement, save up and get it later. You should, however, consider putting your money into better use i.e. funding income generating ventures such as a business.

3. Paying everyday bills:

It’s also a bad idea to get into debt every month to pay rent, energy bills, grocery bills, etc. You can take a payday loan once in a while to sort out expenses when you have some financial difficulties. However, it’s not a good idea to pay for everyday bills with debt. If you find yourself doing this, it’s time to adjust your lifestyle to match your income. It is possible to avoid short-term loans by living within your means and building a savings account.

Important Money Questions Everyone Should Ask Themselves

Important Money Questions Everyone Should Ask Themselves

The importance of having money can’t be overlooked given the fact that we need money to live. Without money, it’s impossible to get food, shelter, clothing, medicine, education among many other basic needs. It also takes money to get the better things in life. No wonder people spend a lifetime trying to accumulate enough money. But do most people understand money? In an effort to help you know if you understand the most important things about money, here are some important money questions to ask yourself.

What is money?

Most people think of paper money when they think of money. However, anything can be used as money as long as it is deemed valuable by the parties engaging in a transaction. Originally, valuable commodities such as gold and silver were used as money. Paper money was simply used to back gold among other valuable commodities in an effort to ease trade as well as solve other problems associated with using commodities as money.
This however changed with the birth of fiat money (money declared as legal tender by governments) but isn’t backed by valuable commodities like gold. Fiat money is dependent on the faith people have in an economy as well as the debt levels of that economy. If people lose faith in a country’s paper money (fiat money), the money will seize being valuable. This highlights the importance of using money to buy tangible assets as opposed to valuing and storing money in its paper form. It is hard to get financially independent if you don’t understand what money is in the first place.

Why am I in my current financial situation/status?

This is another crucial money question everyone should ask themselves. You are where you are financially because of the financial decisions you have made in the past. If you are in a better place than you were years ago, you have been making good decisions. If not, you need to identify your mistakes and move on. The best ways of identifying bad financial decisions is; reflecting on your past decisions. You need to ask yourself other questions. For instance; do you budget? Do you follow your budget? Is your budget balanced? Do you invest? How much risk do you take on? Are you in debt? How did you spend past loans? If you don’t make an effort to find out why you are where you are financially, it will be difficult to progress. It doesn’t matter if you are doing well or not currently. Just find out why you are in your current financial status to be able to take the necessary action

How do I attain financial freedom?

Financial freedom can be defined as the state of having enough money to cater for all living expenses without having to ever work again. Rich people have financial independence. As long as their money is invested in activities that generate recurrent income, they never have to work another day in their lives. The importance of figuring out how to attain financial freedom can’t, therefore, be overlooked when talking about money. If you aren’t asking yourself this question on a daily basis, then your chances of being rich are slim.

In fact, asking yourself this question is the first step to becoming rich. There is no need of working hard and earning a lot of money if you are not thinking of ways of making your money work for you. There will always be something to spend your money on so, if you keep spending without investing, you will keep working for the rest of your life. You should focus on investing and gaining recurrent income streams instead. After working hard for decades, you should sit back and let your money work for you. Investing in financial education is the best way to start discovering how you can generate income for a lifetime without having to work every day.

Summary

If you are able to ask yourself and answer these three money questions, you will be a step closer to financial freedom. Start by understanding what money is and why you are where you are financially. Proceed by understanding what you need to do to make sure you attain financial freedom. Seeking financial education is a good place to start.

How Do You Ask Your Bank For A Business Loan?

How Do You Ask Your Bank For A Business Loan?

One of the biggest hindrances that people face when starting businesses is; lack of capital. This hindrance can be easily eliminated if you understand what banks look for when selecting borrowers. You can make it easier for yourself if you understand what you want to do with the loan in the first place. Here’s everything you need to know about asking your bank for a business loan.

1. Understand why you need a business loan

You must ask yourself why you need a business loan before you approach your bank. Most people have more money than they think. Remember, it is possible to start a business with little to no money. Furthermore, banks aren’t the only lenders. You can borrow from friends, take out a short term loan i.e. a payday loan, turn to a pawnbroker, etc. In a nutshell, there are many options available today when you need a loan. Ideally, you should take a business loan when you really need one.

For instance, a business loan is recommended in instances where you don’t have access to any other funding sources. Most importantly, you must have a business idea. A business loan should also be used for starting/funding a business only and not any other purposes. It’s recommendable to take a business loan to start a business or boost the working capital of your business/grow your business.

Banks actually look at your need for a business loan. If your need is important i.e. you want to start a business/ boost working capital or expand, your chances of getting a business loan will be higher. The idea here is to make sure you are asking for money to engage in a business activity that is bound to generate income. Banks are interested in funding borrowers who show promising signs of repaying their loans so, make sure you convince your bank you need a business loan.

2. Prepare a solid business plan

To convince your bank to give you a business loan, you need to prepare a solid business plan. Banks look at the viability of your business when deciding whether or not to give you a business loan so, make sure you show your bank how you intend to setup and run your business profitably. To do this effectively, the money you get should be put into productive use. For instance, your business plan should state that you intend to spend the money to buy stock for your business as opposed to buying brand new furniture for your office since such spending doesn’t generate revenue. If your business plan shows great potential for making money, your chances of securing a business loan are high.

3. Find the right bank

Sometimes it’s just about finding the right lender. Different lenders focus on different aspects of business. Some banks focus on giving business loans while others focus on personal loans. To increase your chances of getting a business loan, you need to go to a bank that focuses on giving the type of loan you are looking for. Such banks need less convincing. If you have to change banks, do so by all means. The right bank for you is one that offers business loans. Furthermore, you are bound to enjoy other benefits such as lower fees/interest, expert advice, etc. since such banks understand the needs of entrepreneurs more and are interested in seeing you succeed.

4. Ensure you have whatever it takes to qualify

To qualify for a business loan or any other loan for that matter, you have to meet certain requirements. For instance, some banks require businesses to attain certain annual revenue figures before business loans are granted. Some business loans may also require collateral. Banks also require certain documents before they disburse business loans. For instance, if you already have a business, your business’s financials i.e. financial statements must be in order. To avoid wasting precious time, find out what it takes to qualify for a business loan before you apply for one.

Summary

To secure a business loan, you need to make sure you don’t give your bank any reason to deny you the loan. First and foremost, make sure you need the business loan in the first place. Your business plan also needs to be solid. Banks can identify viable business ideas at a glance so, makes sure you do your homework. Your focus should be proving that the money you will receive will be put to good use i.e. it will generate income allowing you to repay your loan with ease. It’s also important to find the right bank i.e. one that specialises in funding businesses. Lastly, you need to make sure you qualify for a business loan before you apply otherwise you’ll waste precious time.

Is Debt Starting To Affect Our Mental Health? What Should You Do?

Is Debt Starting To Affect Our Mental Health? What Should You Do?

According to a recent UK survey carried out by market research company ComRes and insolvency & restructuring trade body, R3, 22% of all adults stated that their finances are affecting their mental health. The survey targeted over 2,000 British adults living East of England.

According to R3, the survey revealed other key causes of mental health issues revolving around personal health or family member health issues. Job, relationship and current global issues also account for some of the main causes of mental health problems in the UK.

The survey reveals that over 37% of all adults living in the Easter region don’t have enough money to wait for the next payday. They attribute their financial struggles to the rising cost of food (52%) and transport (45%).

According to Frank Brumby, R3 Eastern Chairman, financial struggles are universal regardless of the occupation, age or location of an individual. He goes ahead to state that financial worries have an enormous negative effect on a person’s well-being even if the concerns are about the financial situation of other people such as friends and family members.

According to R3 research findings as well as the experiences of R3 members’ clients, a lot must be done to educate people on the options available to them when they find themselves in debt problems. Brumby attests to the fact that improving financial education is among the best ways of reducing stress and mental health problems caused by debt.

R3 Eastern indicates that the personal finance landscape in the eastern region is relatively benign with real wages/income growing while interest rates remain low. Personal finance concerns have however remained sizeable. Bureaucratic obstacles are also stopping many people from taking advantage of the best suitable insolvency procedures.

Brumby continues to state that personal finance pressures will definitely increase in the region considering inflation is bound to rise throughout this year. There are many obstacles which can be solved by easing access to insolvency procedures. According to Brumby, the £680 fee payable by all individuals entering bankruptcy should be paid over time instead of one time to ease stress and boost mental recovery.

Below is a 9-point action plan by R3 Eastern to help anyone with financial/debt issues.

1. Acknowledge your debt problem: Refusing to admit that you have personal finance problem only makes the problems worse.

2. Ask for help: After admitting you have a debt problem, the next step is seeking professional advice. You can get professional financial advice easily for free. You can call the National Debtline, your local Citizens Advice Bureau or a licensed insolvency practitioner.

3. Prioritise debt repayment: Seeking professional advice will help you identify the source of your debt problems as well as effective ways of dealing with them. One of the best ways of dealing with debt problems is prioritising debt repayment. You must adjust your lifestyle to find money for repaying your debts. If you have problems doing this, you can ask for help from an advisor.

4. Be 100% honest with yourself: To solve personal debt problems, you must be honest about the kind of lifestyle you can afford while repaying your debts. Start by calculating how much money you owe. Proceed by adding your most important expenses. Your income should be able to cater for debt repayment as well as those expenses you can’t afford to live without. To accomplish this, you will need to take some drastic measures such as; looking for discounts more aggressively, moving to a cheaper home, etc.

5. Budget: Budgeting helps to identify essential financial commitments as well as trace where your money goes. When you are in debt, you don’t have the luxury of not following where every single cent you spend goes. Budgeting will help you get a true picture of your current financial situation. A budget will also help you stay on track as you try to get out of debt.

6. Maintain open communication with your creditors: Debt problems result in a lot of unnecessary stress due to lack of open communication at an early stage. If you let your creditor know that you have problems repaying as soon as possible, the creditor can extend help which might not be available if you waited. For instance, your creditor can revise payment terms giving you more time and flexibility.

7. Take your time: Although time may not be on your side when dealing with debt problems, avoid being pressurised to make decisions if you haven’t thought them through carefully. Most importantly, the decisions should be supported by expert advice.

8. Stop taking up new debt: You also need to stop applying for new credit cards, payday loans among other types of short-term debt before you get your situation under control.

9. Understand your options: Lastly, you need to know and understand all options available to you. If you need formal insolvency, there are several options appropriate for different debt levels. DROs (Debt Relief Orders) are great for small debt. Other options include; (IVAs) Individual Voluntary Agreements and bankruptcy. It costs more money and time to choose the wrong option so, make sure you understand all options first.

How to Avoid Payday Loan Scams and Unauthorised Firms in the UK

How to Avoid Payday Loan Scams and Unauthorised Firms in the UK

The FCA has gone to great lengths to regulate the conduct of finance industry players in the UK. In an effort to protect consumers, the FCA has a guide that is bound to help you avoid being scammed and/or dealing with unauthorised firms.

The consequences of dealing with unauthorised firms are dire. For instance, individuals who conduct business with unauthorised firms aren’t covered by the Financial Services Compensation Scheme or the Financial Ombudsman Service in case anything goes wrong. To avoid losing your hard earned money, it is important to avoid unauthorised firms. Furthermore, most scams are orchestrated by unauthorised firms.

This leads us to a very important question; how do you avoid scams and unauthorised firms in the UK? Below are 10 important steps to consider according to the FCA.

Step 1: Don’t accept cold calls

You should treat cold calls with extreme caution to avoid being scammed or dealing with unauthorised firms in the UK. Ideally, you should not pick cold calls and if you do, hang up immediately. It doesn’t matter how attractive an investment sounds, most scammers cold-call potential clients. They may also email or text you. For this reason, never open or respond to unsolicited correspondence. It is possible to set protective mailing and telephone preferences to keep you safe.

Step 2: Check if the firm you are about to deal with is registered or authorised

This has to be the easiest but most overlooked way of avoiding scams and unauthorised firms. You shouldn’t deal with any firm that isn’t authorised or registered by the FCA. The FCA has a register (https://register.fca.org.uk/) that lists firms as well as individuals that are authorised or registered to conduct business in the UK. It is advisable to access the register directly from the FCA website as opposed to clicking links in emails for security reasons.

It’s also advisable to beware of registered firms which don’t volunteer adequate information to the FCA since firms aren’t obligated to provide a lot of information about their business. When confirming the identity of any authorised firm on the FCA register, ask for the FRN (Firm Reference Number) as well as the contact details. It’s also good to call the firm back using the switchboard number on the register as opposed to any direct line they may offer you. If you can’t find contact details or the firm claims the details are outdated, call the FCA consumer helpline (0800 111 6768) for help.

Step 3: Check the FCA list of unauthorised firms

FCA has a special list (https://www.fca.org.uk/consumers/unauthorised-firms-individuals) containing all unauthorised firms. To avoid being scammed, make sure you check if the FCA has blacklisted the firm or individual/s you want to conduct business with. The FCA list contains all firms as well as individuals that the FCA has received complaints about. Although the list changes regularly, the FCA adds new firms and names as frequently. Please note that you shouldn’t assume that the firm or individual you are about to deal with is legitimate simply because they are not in the FCA list. The firm/individual may not have been reported to the FCA yet.

It’s also worth noting the FCA has another list (a warning list) http://scamsmart.fca.org.uk/warninglist/ that contains names of individuals and firms that contact people unexpectedly about investment opportunities. You can use this list to see the kind of investment opportunities, firms and individuals you should avoid.

Step 4: Conduct additional checks

Today’s scammers use tactics that keep evolving so don’t stop even after checking the FCA’s list of unauthorised firms. For instance, you should investigate the firm’s website using Companies House (https://www.gov.uk/government/organisations/companies-house) or directory enquiries to ascertain if the firm has issued the correct details on their website.

Step 5: Be cautious of cloned firms

Most scammers pretend to be subsidiaries of a company authorised by the FCA. The scammers usually claim to be overseas firms authorised to conduct business on behalf of FCA authorised firms. Beware of such firms (commonly referred to as cloned firms). To avoid being scammed by cloned firms, check the website of the authorised firm to confirm if the firm has subsidiaries or authorised partners.

Step 6: Stop sending money immediately

If you have already started conducting business with a firm but start getting suspicious that you are being scammed, stop sending money to the firm or individual in question immediately. If you have already surrendered your bank account details, inform your bank immediately.

Step 7: Beware of overseas firms

Most scammers today will present themselves as overseas firms making it hard for you to check and ascertain if they are regulated. Luckily, the FCA has compiled warnings from foreign regulators here: http://www.iosco.org/investor_protection/?subsection=investor_alerts_portal. These warnings are about foreign firms operating illegally and/or scamming people in the UK. Before dealing with any overseas firm/scheme, find out how that firm/scheme is regulated.

Step 8: Report unauthorised firms

If you suspect you have been dealing with an unauthorised firm, contact the FCA immediately through their consumer helpline number (0800 111 6768). The FCA has a reporting form that allows you to report as much information as possible about the ”suspect” firm or individual.

Step 9: Be cautious about further scams

Scammers take advantage of the fact that individuals who have been scammed will want to get their money back. As a result, beware of individuals or companies that call to assist/help you get your money back.

Further scams can assume many forms. For instance, you may be offered another deal that comes with some fees that must be settled before you can get your money back. You can also be threatened with some legal action if you request for a refund or stop sending money. Scammers also ask for personal information such as bank account details for them to send you a refund. Instead of getting back your money, the scammers can attempt to steal your funds and/or sell your personal information.

Step 10: Don’t forget about fake liquidators

The FCA has received numerous reports that scammers are impersonating liquidators/claiming to represent legitimate liquidators. Such scammers usually charge a fee, tax to sell/release/return your investment. You may also be asked for an upfront payment. Avoid such firms/individuals by all means. You can find legitimate liquidators by clicking here: https://www.gov.uk/find-out-if-a-company-is-in-financial-trouble

Summary

Although there may be other steps to follow when you want to avoid fraudsters and unauthorised firms in the UK, the above steps are the most important according to the FCA. If you follow them to the letter, you don’t have to worry about being a victim of any financial scam in the UK.

Donald Trump Wants To Scrap The Consumer Protection Agency, What Does This Mean For Borrowers In The US?

Donald Trump Wants To Scrap The Consumer Protection Agency, What Does This Mean For Borrowers In The US?

US President Donald Trump is facing immense pressure to get rid of America’s consumer protection agency CFPB (Consumer Financial Protection Bureau). This is according to the man set to head the agency. If this happens, rogue debt collectors, loan sharks, and payday lenders will have unmatched freedom to rip off American borrowers.

According to Randy Neugebauer who is slated to replace the current CFPB Director, President Trump is facing immense pressure from the Republican Party to break up the agency completely. The former Texas congressman held talks with the then President-Elect Trump shortly after his election victory in November.

While speaking to The Independent exclusively in his 1st interview since the new Trump administration took office, Mr. Neugebauer stated that his meetings with President Trump have involved discussions revolving around deregulating as well as gutting the CFPB.
Mr. Neugebauer went ahead to state that some of his colleagues are in favour of doing away with the agency completely. He is however of the opinion that it’s better to change certain aspects of the agency as opposed to doing away with the agency completely. Mr. Neugebauer feels that the government shouldn’t be telling the public what types of financial products are the best but rather, creating a safe environment where the public is safe from unfair lending practices.

This is where the CFPB comes in. The agency has the power to take any necessary action against companies which break the law. The agency also takes on cases revolving around race or age discrimination.

Under Mr. Neugebauer’s watch, the agency’s current form is likely to be dismantled which may result in the agency losing much of its influence. Mr. Neugebauer claims that American consumers are currently being suffocated by regulations. He prefers a consumer environment where consumers have the freedom to choose the loans they want whether the deals available are good or bad.

Mr. Neugebauer has stated that he is willing run the agency if appointed. However, it will depend on what the long-term plan of the agency will be. Although Mr. Neugebauer admits to having had broad discussions with President Trump, he goes ahead to state that he hasn’t discussed any specific job offer with the president.

Mr. Neugebauer has been on the record voicing his support for payday loan lenders, despite the apparent lack of transparency as well as crippling interest rate charges that have contributed to calls for payday lenders to be banned.

He also backs President Trump’s executive order aimed at reviewing the 2010 Dodd-Frank financial regulations. Mr. Neugebauer states that the Obama administration rules meant to get rid of risky lending practices were an overreaction. Mr. Neugebauer views the current regulation as blanket regulation meant for the whole financial market yet some entities weren’t part of the cause of the financial crisis that warranted the 2010 Dodd-Frank financial regulations. In his opinion and those of many others, the regulation went too far.
Under the current CPFB director Richard Cordray, customers who have been victims of credit scams or unfair banking sector practices have received billions in compensation. However, Mr. Neugebauer claims that the problem was overstated and individual states were doing a better job when compared to the CPFB.

He admits to the fact that there are people who will always try to abuse the system, however, action can and has been taken against such people.
Furthermore, the CFPB is already under threat given the federal appeals court ruling in October that the agency has an unconstitutional structure. The ruling also gave President Trump the power to dismiss the current director at will and appoint his replacement anytime even before his term ends in 2018.

The agency which came into being after the 2010 Dodd-Frank reform law was enacted is among former President Obama’s main domestic policy achievements. The achievement is, however, unpopular with libertarians who think it has resulted in unplanned long-term commitments that shifts from the initial objective. Most libertarians feel the agency should either be reformed or disbanded.

A bill has already been introduced by Representative John Ratcliffe and Senator Ted Cruz to disband the agency. If the bill is passed prompting the disbandment of the CFPB, the move will be hugely controversial. Many banking sector players have warned against such a move claiming it will do more harm than good.

The FCA ''killed'' Payday Loans But What Has Come After Appears To Be Just As Bad For Borrowers

The FCA ”killed” Payday Loans But What Has Come After Appears To Be Just As Bad For Borrowers

Many people in Britain applauded when the FCA (Financial Conduct Authority) put an end to Wonga-style payday loans back in 2015. Fast forward two years later, the applause is over. In fact, fear has set in over whether the FCA’s payday loan assault has resulted in a new uncontrollable headache for borrowers.

The FCA has gone as far as launching an investigation on the impact of the payday loan cap on borrowers. There is evidence from numerous industry sources (debt charities and industry groups) suggesting that there is an increasing number of people who have been completely locked out of the credit markets or have been forced to turn to high-cost loans.
According to Jane Tully, Director of External Affairs at Money Advice Trust, it is possible to ”regulate away” supply but you can’t ”regulate away” demand. Simply put, the FCA’s actions only dealt with the supply of payday loans (payday loan lenders) but didn’t think about the effects on borrowers.

According to Tully, payday loan problems have been displaced. There are many people today who are accessing many other forms of high-cost credit because they have no option. Such people have a higher chance of falling into debt now more than ever.

Although the FCA payday loan cap was designed solely to tighten lending practices as well as protect borrowers, the cap has had negative effects such as killing the supply of payday loans. This has, in turn, left many people with fewer suitable short term loan options.

Before the cap, the payday loan industry had two main industry players namely; Wonga, and Dollar Financial. These dominant payday loan lenders are in the process of being forced out of the payday loan lending business.

Wonga’s revenues dropped by a record 64% in 2016. Dollar Financial has already closed hundreds of Money Shop stores and put their payday loan business up for sale.

According to the CFA (Consumer Finance Association) C.E.O., Russell Hamblin-Boone, the payday loan industry markets to a higher demographic, however, this has attracted some unforeseen consequences. The CFA represents twelve of the biggest payday loan lenders in the UK.

According to recent consultations carried out by the FCA, there is a sharp increase in the number of UK citizens missing their utility bill payments in the past two years.
According to debt charity; StepChange which focuses on individuals facing financial distress, over 40% of all its clients miss one or more bill payments every month. StepChange has also discovered that 34% of all individuals who are denied payday loans turn to other types of short-term credit.

According to StepChange’s policy adviser, Laura Rodrigues, those people who miss bill payments state that they don’t have adequate money to cater for all their major expenses. Rodrigues also recognises the fact that there is a gap in the market that has been created by the FCA cap. There are few suitable alternative forms of short-term credit which exposes possible FCA social policy issues.

According to the Consumer Finance Association, approximately 600,000 people struggle to get short-term loans in the UK as payday lenders continue exiting the market. The apparent squeeze on short-term credit supply has also forced people to fall into the hands of unscrupulous lenders now more than ever before.

Individuals who have been shut out from accessing short-term loans because of the tighter affordability checks have been forced to turn to high-cost credit products such as logbook loans, unauthorised overdrafts, guarantor loans, etc., which aren’t price capped or haven’t undergone serious regulatory scrutiny. According to the FSCP Chairman, Sue Lewis, the same protections applying to high-cost short term loans should apply to all other types of credit.

Although influential groups like the Financial Services Consumer Panel (FSCP) which advice the FCA have requested the government to regulate these types of loans the way payday loans are regulated, nothing has been done so far. The FCA, however, plans to lay out a post-cap policy this summer.