Thursday, 8 December 2011

Payday loans: legal loan-sharking or a better bet than the banks?

Wonga is one of many payday loan providers to argue that unauthorised bank overdrafts are more expensive.

Blackpool's Charlie Adam scores from the spot - Payday loans: legal loan-sharking or a better bet than the banks?
Net gain: Wonga, which sponsors Blackpool FC, said its customers were mainly tech-savvy young professionals who previously used the banks to borrow money Photo: REUTERS
11:21AM GMT 07 Dec 2011
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Wonga, the short-term loan business, has long argued that it is more transparent than the banks.
Earlier this year Errol Damelin, the founder of the company, told The Telegraph that customers could not compare the cost of borrowingmoney in the short term when the most common way of doing it was through a bank overdraft.
Wonga is forced to display a representative annual percentage rate (APR) for its loans of 4,214pc. However, Mr Damelin said that, because it offered loans limited to 30 days, the APR was not relevant, and the loan was often cheaper than unauthorised bank charges for the same amount.
"There is a place for an APR, but we don't offer a loan that rolls up for a year so you are comparing an impossible product," he said. "Also, it is not used by the banks so customers cannot compare in a normative way."
It warned that there were no effective price comparison services for current accounts. It added that some experts believed companies "design complex tariffs and pricing structures to decrease the ability of consumers to compare prices".
Mr Damelin said complex overdraft charges and structures meant that the majority of bank customers "never understand what they are going to pay" when they go overdrawn.
In some cases, despite Wonga's expensive 4,214pc APR, it can be cheaper to take out a short-term loan. For example, if you have an Everyday Current Account with Santander and become overdrawn it can cost you dearly. If you go into your unarranged overdraft and are overdrawn for two days in a row, and two payments come out of your account in that time, it will cost you £60. If you borrowed £100 from Wonga for 15 days to avoid slipping into overdraft, you would be charged £21.11. If you borrowed that money for two days, it would cost you £7.50.
However, the problem comes if you cannot pay back your Wonga loan within a short time period. You will incur a missed payment fee of £20 if the money is not available on the day you have nominated to pay it back and they will then charge you a maximum of 60 days' interest at 1pc a day.
Mr Damelin said customers needed to be able to compare the two types of product in order to make a decision, a comment echoed Sir John Vickers banking commission report published this year. The report said price comparison sites did not really work for bank accounts, and consumers did not know whether they could get a better deal elsewhere.
Mr Damelin said there needed to be more competition in banking in order to meet customers' needs, saying that the Government was not encouraging new entrants into the banking market.
Wonga's own model is based on a complex algorithm and credit checking process, rather than a human assessment of payslips and address details, as with many payday loan companies. Each loan application is assessed entirely by a computer.
Wonga, which sponsors Blackpool Football Club, is keen to avoid the sobriquet of "payday loan company", and says its borrowers are not vulnerable customers who struggle to pay back the money that they have been lent. Instead, it describes them as mainly tech-savvy young professionals. Less than a quarter of the company's customers have previously used an equivalent online or short-term loan product before coming to Wonga. Instead, they're coming from the banks and traditional credit products.
Every single Wonga customer has a bank account, debit card, internet access and a mobile phone. The company's loans of up to £400 are available for one day to a month, and interest is charged at 1pc a day. The vast majority of customers can access other forms of traditional credit, such as loans and credit cards. For many, Wonga is an alternative to a long personal loan that they could not pay back early because of repayment penalties, or an overdraft fee.
Mr Damelin said the company allowed people to pay back the money whenever they wanted to without charging them extra. Seven in 10 loan applicants are rejected, and the company credit checks with major agencies before deciding whether to accept applications.
That did not stop Stella Creasy MP from denouncing the company for "legal loan-sharking". She wants interest rate caps on payday lenders, which Mr Damelin said he did not support. Wonga hit back at Ms Creasy's remarks. In a public letter it said that accusing it of being a legal loan shark might make for good press copy, "but it underplays the fact that our company is a legitimate and well regulated one – under legislation overseen by the Office of Fair Trading and the Department for Business, Innovation & Skills".

SHOULD YOU USE WONGA?

Wonga may be transparent, but a loan that costs you 1pc a day is only a good idea if the alternatives are more expensive. If you have a liquidity crisis there may well be cheaper options, especially if you are in good standing with your bank. The scenarios below explain when a Wonga loan, or similar, is a decent option, and when it isn't.
USE WONGA IF
• You have a bill going out that will take you over your limit and the alternative is a hefty overdraft charge. This only applies if you are about to receive the cash to pay the bill from a reliable source.
• You can't convince your bank to give you a cheap authorised overdraft.
• A cheque is about to bounce and you will be charged for it.
• The alternative is a long-term loan which you know you won't need for more than a few weeks.
NEVER USE WONGA IF
• You have a shortfall in day-to-day living expenses and want to cover it.
• You need a loan that will take a while to pay back.
• You have a 0pc credit card that you could put the debt on instead.
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HSBC acts to stem mis-selling fall-out


HSBC has taken a dramatic step to stem the growing scandal over its mis-selling of long-term care bonds to elderly customers by offering to compensate investors who bought NHFA products long before the bank bought the scandal-hit investment advisor.

HSBC has taken a dramatic step to stem the growing scandal over its mis-selling of long-term care bonds to elderly customers by offering to compensate investors who bought NHFA products long before the bank bought the scandal-hit investment advisor.
HSBC bought NHFA for £9m in 2005, but shut the operation to new business in July after discovering serious deficiencies in the way its customers were sold products designed to help them pay for their long-term care. Photo: REX
10:04PM GMT 07 Dec 2011
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In a sign of the serious reputational damage HSBC has suffered since being handed a record £10.3m fine for mis-selling nearly £300m of investment bonds to elderly and vulnerable customers, the bank has pledged to examine cases of mis-selling dating back as far as 1991, some 14 years before it bought NHFA.
The move by the bank could dramatically increase the current £29.3m estimate of the cost of compensating customers who lost money as a result of being advised to buy unsuitable financial products by NHFA salesmen.
HSBC bought NHFA for £9m in 2005, but shut the operation to new business in July after discovering serious deficiencies in the way its customers were sold products designed to help them pay for their long-term care.
The backlash against the bank has been swift with public revulsion at the way NHFA customers, who have an average age of 83, were pushed into products that in some cases resulted in their families suffering losses of thousands of pounds when they died before their bond matured.
Tracey McDermott, acting director of enforcement and financial crime at the FSA, said NHFA had "breached" the trust of its customers.
Brian Robertson, chief executive of HSBC Bank, said he was "profoundly sorry" at the way NHFA staff had behaved and insisted no customer would be "disadvantaged" as a result of mis-selling.
Sources close to the situation said the move to begin compensating customers mis-sold to by NHFA even before it was bought by HSBC would be done on a "case-by-case basis".
Just under 2,500 customers bought investment bonds between July 2005 and July this year, investing on average about £115,000 in long-term care bonds with a five-year life.
However, in 87pc of the cases examined by the FSA, NHFA was found to have made an "unsuitable sale", with customers encouraged to buy the bonds on which the business's salesmen earned large commissions.
NHFA's three senior managers are each reported to have made millions of pounds from the sale of the business to HSBC, with founder Peter Spiers receiving £3.8m from the sale, while Nick Tyler and Peter Fisher each made £2.85m.
Mr Spiers and Mr Fisher both left the business back in 2008, while Mr Tyler remains an employee of the bank, but is expected to leave early next year.
As yet, the FSA has not launched any individual actions against the three men or any other NHFA staff. It is also not yet known whether HSBC will launch a legal action of its own to recoup commissions paid to NHFA staff for products mis-sold to its customers. A spokesman for HSBC declined to comment.
HSBC, along with all the UK's other major banks, is currently in the process of paying out hundreds of millions of pounds of compensation to customers mis-sold payment protection insurance after conceding defeat on the issue earlier this year.

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'A great opportunity to buy equities will emerge'

'A great opportunity to buy equities will emerge'
Shares will stage "a very strong and sustained rally" if a solution is found to the debt crisis, according to a senior investment strategist.


ECB HQ - 'A great opportunity to buy equities will emerge'
Mr Scott said he doubted that the eurozone would survive in its current form Photo: Bloomberg News
3:55PM GMT 06 Dec 2011
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Even a break-up of the eurozone would provide a good opportunity to buy equities, said Ted Scott, the director of global strategy at F&C Investments.
"With each emergency summit proving to be more disappointing than the last, investors have lost faith in the eurozone policy-makers to provide a solution that will work," he wrote in a research note under the heading "A great opportunity to buy equities will emerge".
"This has contributed to a collapse in investor sentiment with fear the overriding emotion in today's markets."
But he added: "If a satisfactory solution for the debt crisis were to be found, the reversal in investor sentiment could contribute to a very strong and sustained rally."
Mr Scott said he doubted that the eurozone would survive in its current form, but that even a break-up of the bloc would be a positive "end-game" for investors.
"I believe the end game is moving towards some form of break up in the Eurozone and this will be the catalyst that provides an attractive entry point for equity investors," he said. This was despite his assessment that "the risk of a second global recession and financial crisis, at least as bad as 2008, cannot be discounted".
He said the valuation for equities was "low from a historical perspective". "The dividend yield on most markets is high, especially against government bonds for AAA-rated countries. When dividends yield more than bonds it is traditionally a strong buy signal that has rewarded investors handsomely."


http://www.telegraph.co.uk/finance/personalfinance/investing/8938388/A-great-opportunity-to-buy-equities-will-emerge.html
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Christmas gifts of lasting value for family and friends that will make a mint

Gifts that will make a mint

December 7, 2011

2012 Lunar Year of the Dragon Gold Coloured reverse
Golden opportunities … whether investment advice or a charitable donation, there are many gift options that can give someone long-term joy.
From stocks in the Christmas stocking to courses and coins, Barbara Drury looks at presents that will foster prosperity and grow in value.
All the signs are there. The tinsel is up at the local shopping centre, the supermarket has been selling fruit mince pies for months, the letterbox is stuffed with gift catalogues and kindergarten children are penning their first letter to Santa.
It's beginning to smell a lot like Christmas. But in a year when rich countries are battling debt and poor countries are battling dictators, floods and famine, the annual orgy of food, wine and gift giving poses more than the usual conundrum.
How to find gifts of lasting value for family and friends that won't be returned on Boxing Day?
Or, worse still, end up as landfill?
Money has donned its paper party hat and consulted the Christmas-cracker oracle (as well as some investment experts) to divine a list of gifts that will keep on giving long after the Christmas tree is packed up for another year.
With the sharemarket stumbling backwards and forwards like the office drunk at the annual Christmas knees-up, who in their right mind would give shares to someone they cared about, right? Wrong.
If you are buying shares for children, or any long-term investor, they may have a time horizon of 10 or 20 years. ''While markets are visibly risky now, for the long term it is more advantageous to buy now than it has been for years,'' the editor of the Sound Money, Sound Investments newsletter, Greg Canavan, says.
INVESTMENT IDEAS
Parents and grandparents often want to help children financially and teach them the principles of long-term investing. A parcel of quality shares, or units in a managed fund, is a gift that pays dividends for a lifetime.
Not only can the investment be used in future for a house deposit, university education or travel, the investment knowledge it provides is invaluable.
There are risks in this strategy, though, especially if you only plan to make a one-off gift of shares.
The managing director of Professional Wealth, Doug Turek, says buying units in an exchange-traded fund (ETF) would offer more diversification than a parcel of BHP shares.
''Dad gave me shares and it took 20 years for them to get above their purchase price,'' he says.
An ETF over a broad market index, such as the S&P/ASX 300, gives exposure to the top 300 Australian companies and can be bought and sold on the ASX like an ordinary share.
Canavan agrees that for a single purchase, it may be better to buy shares in a broad market fund, where a professional fund manager looks after a diversified share portfolio for you.
''LICs [listed investment companies] such as Argo and AFIC [Australian Foundation Investment Company] are well managed and pay good dividends. They are an option for people who don't want to keep an eye on stocks themselves,'' he says.
Independent share analyst and author Roger Montgomery says people buying shares for the long term, even for someone else, should aim to buy a diversified group of quality businesses.
''If you intend buying shares for children for the rest of their lives, you only need to buy small amounts. [The companies you invest in] can be any size … but don't buy all at once. Buy the same amount twice a year for two years to spread your risk,'' he says.
STOCK PICKS
Canavan also advises averaging into the market, buying income-producing stocks, such as Telstra and biopharmaceutical company CSL, and reinvesting the dividends.
Montgomery says four-wheel-drive accessories supplier ARB Corp, CSL, Cochlear, ANZ and Flight Centre are his top long-term picks. Although he would normally buy shares for his three children, aged 10, eight and two, this year he is thinking of giving them small gold ingots instead (see box).
The research director of the Intelligent Investor newsletter, Nathan Bell, picks QBE Insurance, Computershare and Woolworths as quality stocks that should stand the test of time.
''People will still be buying groceries from Woolworths in 20 years' time and you get a 5 per cent fully franked dividend yield along the way,'' he says.
Bell says QBE is a strong, well-managed insurance business with a dividend yield of 9.8 per cent but it's currently priced as though it will never make another dollar of investments. He says Computershare has just made a great acquisition in the US and is a well-managed business for the long haul.
Bell owns all three stocks and hopes they will provide for his children in future. But with six-month-old twins, he hasn't had time to think about shares for their Christmas stockings yet.
EXPERTS AND ANALYSIS
If someone in your life spends endless hours in the study trying to make sense of financial markets, you can help them lift their game and enjoy the company of like-minded people at the same time.
Give them an annual membership to one of three independent, non-profit investment associations or a subscription to an investment newsletter.
The Australian Investors' Association (AIA), Australian Shareholders' Association (ASA) and the Australian Technical Analysts Association (ATAA) all offer one-year subscriptions that provide educational material, regular conferences and seminars and the chance to join a local discussion group in capital cities and some regional centres.
The AIA is offering a Christmas special: join now and $130 buys 15 months' membership for the price of 12. This deal is only available over the phone on 1300 555 061.
The ASA offers several levels of membership from $115 a year, while the ATAA charges $290. The ATAA is aimed more at traders and offers diploma courses in technical analysis in conjunction with Kaplan.
Paul Ash, an ATAA member for 20 years, says the organisation has introduced him to a vast array of like-minded amateurs and experts. ''If ever I've got an investment problem, I can ask other people and they can usually provide a solution,'' he says.
AIA executive officer Silvana Eccles says a survey found that the most popular subscription newsletters among its members were the Eureka Report ($385 for one year), Morningstar (from $299 a year), Investing Times (from $250 a year) and Marcus Padley's Marcus Today($750 a year).
BRAIN FOOD
Books are synonymous with holidays on the sand or a plane trip overseas. They not only help while away the hours but help the reader make money.
Five years ago Janene Murdoch, of the Educated Investor bookshop, gave her 17-year-old son a copy of Scott Pape's The Barefoot Investor: Five Steps to Financial Freedom in Your 20s and 30s (Capstone, $26.95) in an attempt to teach him good money habits. The book hit the mark. Now aged 22 and one year into his first full-time job, her son has saved close to $40,000 towards his first home.
''It's scary how many 30-year-olds still haven't got their money sorted,'' Murdoch says. She recommends two of the current crop of investment books that provide food for thought, as well as an entertaining holiday read.
Bulls, Bears and a Croupier, by former journalist and fund manager Matthew Kidman (Wiley, $34.95), encourages readers to stop gambling and prepare to make money on the sharemarket when the bears finish their mauling. Although it aims to be an investment primer, it is also full of colourful characters and entertaining anecdotes.
Extreme Money: The Masters of the Universe and the Cult of Risk by Satyajit Das (Penguin, $32.95), is a well-written, illuminating explanation of the fine mess the so-called financial experts have got us into.
Even in bear markets, some people are making money. If you want to find out how, Murdoch suggests Alan Hull's Trade My Way (Wiley, $29.95).
For budding Warren Buffetts of any age heading off on holidays with an e-book reader, many investment titles are now available in digital form.
Lesley Williams, director of Major Street Publications, says all her best-selling investment titles are also available as e-books. Allan Trench's excellent A Share Buyer's Guide to Investing in the Australian Mining Boom retails for $34.95 on paper or $15.95 as an electronic download. Margaret Lomas's Investing in the Right Property Now! is $29.95 and $12.95 as an e-book.
SOUL FOOD
For the person who has everything, or is just difficult to buy for, why not consider making a charitable donation on their behalf.
For as little as $10, you can help SANE Australia help people suffering from mental illness, while $60 provides clean water for a family in a developing country and $69 will send a girl to school.
You can go straight to the charity of your choice and buy a gift card online or choose from hundreds of charities at karmacurrency.com.au.
Or perhaps the most precious thing you can give this Christmas is your time. The Salvation Army alone expects to help 300,000 Australians this Christmas. It will serve 8000 meals and distribute $20 million in vouchers, hampers and toys.
If you have time or money to spare, ring the local contact number for the Salvation Army or similar charities operating in your area to see how you can help. It may also be the best gift you can give yourself this Christmas.
Bright prospects for someone special
❏ Invoke wealth and prosperity with a 2012 Year of the Dragon gold coin.
❏ Start a share portfolio for a child and add small amounts regularly. (See ''Stock Picks'', below.)
❏ Alternatively, buy shares in a listed investment company or exchange-traded fund.
❏ Build investment know-how with a book or membership of an investors' association.
❏ Donate time or money to a good cause.
Precious metal investment could light up Christmas as prices soar
A sprinkling of gold is sure to brighten the mood of the most jaded investors this Christmas.
The gold price has jumped 25 per cent this year to its current level of about $1736 an ounce, a spectacular return in a year in which Australian shares have fallen 16 per cent and other mainstream asset classes are treading water at best.
Greg Canavan says gold could go to $US5000 ($5015) an ounce if central banks keep printing money to bail out debt-laden nations, boosting inflation as a result.
''Gold will be a better store of value [than other investments],'' says Canavan, who has 23 per cent of his personal portfolio in a mix of precious metals and gold shares for diversification.
It seems a lot of people agree with him. Gold coins, bars and baubles are flying out of the Perth Mint gift shop, according to retail sales manager Cathy Anza.
''[Some issues of] Year of the Dragon gold coins are selling out before the year even begins,'' Anza says.
The Chinese Year of the Dragon is meant to bring good fortune and prosperity and if next year is as wild a ride as the past one, an investment in gold may be one of the few ways to prosper.
Bullion coins and bars are priced according to the daily spot price for gold. Collectable coins and minted bars sell for a premium over the spot price, depending on the design and packaging. Most come in an attractive presentation case.
Year of the Dragon gold coins start at $339 for 1/10th of an ounce (2.83 grams) of 99.9 per cent pure gold. Children might also like a pure-gold Kangaroo Nugget, which start at $245.58 for 1/10th of an ounce.
For those who like their gold pure and simple, gold bars start at $927 for half an ounce.
Gold minted bars with the Perth Mint logo and kangaroo motif start from $322 for five grams.
All products can be bought online at perthmint.com.au and are delivered to your door.


Read more: http://www.smh.com.au/money/investing/gifts-that-will-make-a-mint-20111206-1ofvw.html#ixzz1ftLSkQZl
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Borrowers in Australia lose to retirees if banks don't pass on fall.


Michael Evans
December 8, 2011
Retirement. Lawn Bowls.
Retirees will see 'a transfer of wealth' from mortgagees. Photo: Quentin Jones
RETIREES and savers with bank deposits stand to be surprise beneficiaries from any move by the big four banks not to pass on in full this week's 25 basis point cut in official interest rates to home mortgage holders.
As the banks continued their game of chicken last night, refusing to blink and reveal how much of the Reserve Bank's rate cut they would pass on to borrowers, analysts said one consequence of a reduced cut would be a transfer of wealth from mortgagees to retirees.
With offshore credit markets effectively shut due to the European debt crisis, home-grown deposits are becoming increasingly important to local banks as a source of funding. And to ensure access to the funds, banks will consider keeping some of the cut to borrowers to pay those with money to lend, analysts said.
''You're subsidising your grandparents' retirement,'' one analyst said. ''The banks aren't making any more money on their spread.
''All that's happening is if you're a borrower and want to borrow money, you've go to pay the people who have money. And the people who have the money are the retirees and the people who don't are the first home owners. It's nothing more than an intergenerational transfer.'' Analysts argue that the money raised by the banks from withholding some of the rate cut will not be going to their bottom line - but note that in using the money to offset the higher cost of funding it will protect their margins from contracting.
Another analyst said a deposit rate battle between the banks was on the cards, but noted that it might be relative given markets were expecting up to 125 basis points in rate cuts in the next year, meaning deposit rates would also tumble.
One analyst calculated that for every five basis points banks did not pass on to home owners from the rate cut, $400 million of the $1.2 trillion in mortgages in the banking system would be transferred from home owners via the banks to the providers of funds, increasingly deposit account holders.
Another calculated the five basis points that NAB did not pass on from the Melbourne Cup day rate cut were worth about $100 million to the bank.
Banks normally rush to cut interest rates on deposit accounts after a cut to official rates, but analysts expect to see a game of cat and mouse as they assess the value in keeping deposit rates higher.
Shane Oliver from AMP Capital called chances of the big banks passing on the full 25 basis points ''a big if''.
Australian Bankers Association chief executive Steven Munchenberg said: "It's not going to be a surprise to the RBA should one or more banks decide not to pass along the full rate cut. The RBA would have factored that in to their decision."



Read more: http://www.smh.com.au/business/borrowers-lose-to-retirees-if-banks-dont-pass-on-fall-20111207-1oj6t.html#ixzz1ftJBwR66
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