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I formally apologise for not being a payday lender

That’s what the boss of a payday loan firm thinks I should do.
The man behind QuickLoans has closed down his company due to "threats of political interference by both parties". And he saves his best venom for me…

In his error-strewn statement (read it in full) he says:

I formally apologise for not being a payday lender.

“We believe that a ‘political correct’ group of people and politicians with no experience of lending appear to think that lending is easy and that these people don’t seem to take into account that not all of our customers make repayments on time, if at all.

The obvious answer, if they truly believe this, is for them to start their own lending service and undercut companies like us. In our view these people are total hypocrites, Martin Lewis being the biggest of these hypocrites. Out of the £300m he sold, he hasn’t loaned a penny to anyone at any rates.”

Rather staggeringly he put this in a press release without even bothering to do the most basic of internet searches to fact-check first. His statement bears little resemblance to reality. (Sadly) his numbers are many times overestimated, and his ‘I’ve never loaned anyone money’ line is also inaccurate.

As I’ve stated both in the Telegraph and here, I’m a peer-to-peer saver. In effect, this means my money is lent out to people at 5-7% a year with flexible repayment terms, rather than the 5,000%+ of some payday lenders.

I also deliberately have some savings with a credit union, not for its rate, but so it can be lent out to help those who are struggling.

Yet, of course, that isn’t his main point – his annoyance is the fact that he believes people are trying to kill the payday loan industry.

He’s wrong. I at least want to regulate it, not kill it, so that it plays fairly and doesn’t overcharge. I don’t want all payday lenders to close down – that risks pushing people towards loan sharks, but I do want the industry to return to the niche piece of borrowing that it once was, and to ensure there’s a total cost cap so that people aren’t being ripped off.

In other countries where this has happened, payday lenders have still made money. Not all will survive, but frankly, I’m not sure we want every second store on our high street to be a payday lender anyway.

So no apology from me. I am proudly not involved in payday lending (barring via a credit union), but I will continue both here and in broadcast to provide information on how to cut debt costs, cheap alternatives to payday loans, debt crisis help, mental health and debt as well as campaigning on people’s financial issues and supporting credit union provision.

In my view, this is more of a public service than offering hugely expensive payday loans.

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The Government has sold people out over Erudio student loans

The Government has sold people out over Erudio student loans

The Government has sold people out over Erudio student loans

Last December I blogged to put people’s minds at ease over the student loan sell-off. Many had worriedly asked me if there would be big changes and I explained that no, there shouldn’t be as the Government had guaranteed no changes to the loan terms and conditions. Well, I was wrong. 

With the benefit of hindsight, the promise of no changes to terms and conditions was underwhelming. What was needed was a guarantee that the customs and practice of the Student Loans Company’s (SLC) dealings with borrowers would remain when loans were transferred to Erudio.

The MSE Forum is rammed with former students who are struggling with Erudio, the company that has taken over the student loans. My Twitter feed has been jammed too. Has the Minister David Willetts responded? No. He’s kept schtum.

On Thursday, I covered this in detail on my Radio 5 Consumer Panel and told Erudio exactly what I thought. Now, I want to quickly bash out a few more thoughts. 

The basics – what loans have been sold?

We are talking here about loans given to students who started university between 1990 and 1997 – known as "pre-1998 mortgage style student loans".

Unlike today’s loans, where once you go over a threshold you repay in proportion to your earnings, here the threshold is a cliffhanger. 

If your income is under £28,775 a year you needn’t repay a penny. If it’s more, you usually repay the full whack in 60 equal monthly instalments.

The loan wipes 25 years after you graduate, or when you hit 50, whichever is sooner. So many who started in 1990 and deferred are not that far away from having their loan wiped, which is why continuing deferment now will make a big difference.

Just as crucial is how these loans are repaid. Under the current system, repayments are taken automatically via the payroll, but old-style loan payments are primarily collected via direct debit, just like a normal bank loan (and those who have these loans are required to have a direct debit set up in case they earn over the threshold).

For more info on all the loan types, see my Should I Overpay My Student Loan? guide.

Erudio loans – what’s gone wrong?

The sale of pre-1998 loans to Erudio has caused three major problems which have left some borrowers struggling. A few have even reported sleepless nights over the stress of it.

1. The form is far more invasive.

Under the Student Loans Company’s administration there was a form to "apply for a deferral of repayment", which was two pages long and you filled it in if you didn’t earn enough.

Now there’s an untitled form, admittedly far more clearly laid out, which you fill in effectively as a fact-find for Erudio.

The difference in presentation speaks volumes. The first appears as a ‘fill this in if you want to defer’, the second is a ‘tell us about you and we’ll decide whether you can defer’ – seemingly abrogating the decision away from the borrower to the loan company. 

Couple this with the fact it asks for far more detail about employers, income and child support and you can see why this nuanced change in stance has left many concerned and nervous.

2. Erudio is handing over information to credit reference agencies.

The Student Loans Company (SLC) only registered information with credit agencies when someone defaulted – in other words – they didn’t pay when they were supposed to. Erudio, on the other hand, is telling credit reference agencies about all those with outstanding loans that are deferred.

In my view, the sell-off of student loans should not change how the student interacts with the repayments system. But it has. When I asked Erudio why it’s doing this, it told me it’s because in order to get information from credit reference agencies it has to give it to them, and it wants this info so it can "treat each borrower as an individual in a way the SLC never did".

So how does this fit with the Government’s promise of no changes to terms and conditions? Well, technically the SLC did have the ability to do this. It just chose not to for the last 20 years.  

But I think this creates a legitimate expectation for people who have these loans that this was a standard operating system, part of the custom and practice of the way the loans work. 

As the Financial Ombudsman Service can adjudicate on pre-1998 student loans (not later ones), and one of the factors it looks at is "standard industry practice", it would be interesting to know what’d happen if someone took a complaint to it on this (my assumption is it’d be rejected, but you never know).

It is worth noting though that the inclusion of this data on credit files won’t necessarily be negative for individuals. It’s a balance of the fact that you’re managing credit well versus having more outstanding credit. See the Erudio to credit-score student loans news story for more.

Ultimately though, the problem seems to be that the SLC ran on not much more than an ‘if people say they don’t earn enough, they can defer’ system, while Erudio is far more focused on being meticulous. However, I’d argue that in some ways borrowers had a legitimate expectation that the SLC’s approach would continue.

Erudio says it wants to provide a bespoke system for each borrower. It believes many who deferred in the past shouldn’t have been deferred, they should have been given forbearance (ie, they are eligible to repay, but should in special circumstances be let off doing so) and it wants to look at each case individually. 

That sounds all well and good, but people have had the same system for 16 years and now Erudio is interrogating the data in a very different way. That leaves many upset.

3. Payments are being taken when they shouldn’t and without notice.

This one is just pure cock-up territory. People are reporting in their droves that they are having payments taken by direct debit even though they are deferred. It’s worth noting that Erudio itself isn’t doing the deferrals, it’s sub-contracted that to Capita.

This has left some facing overdraft charges or a credit score impact. Erudio says it has fixed the issue for the 50 affected; yet I think that’s an underestimate of the true numbers. I’ve had roughly a dozen people contact me on Twitter alone – I can’t believe a quarter of all the people in the country who’ve had this happen have got in touch with me on Twitter! Normally it’s a fraction of one per cent.

Even though we must partially accept that human error can and will happen, there are systemic issues too. The direct debit regulations say you must inform somebody of the amount of payment you will take and when that payment will be taken in advance, and that clearly hasn’t happened here.

Erudio says it will put things right, but I don’t think it has a clue how this operates.

Overall, Erudio hasn’t been fit for purpose. I’ve had woeful reports of its customer service, and some people haven’t even been able to get through to it. The company clearly under-resourced this and didn’t expect to see this kind of public response.

Staggeringly, when this issue first hit, Erudio didn’t even have a press office – seemingly it hadn’t anticipated any media interest in one of the hottest of political hot potatoes.

The Government must accept responsibility

The Government has mishandled and miscommunicated this. We’ve been nagging it, but have just received generic statements from the Department for Business Innovation and Skills. The minister, David Willetts, hasn’t said anything.

As someone who was relatively sanguine about the sale of the student loan book believing it was only a back-end operation that wouldn’t really change much for those with outstanding loans – I’ve now changed my mind. 

Having seen this mess, it would take a lot of persuasion to get me to believe that it’s worth the risk to sell any more of the student loan book.

I’d love your thoughts…

Ps. If you’re having problems with Erudio, remember that pre-1998 loans are covered by the Financial Ombudsman Service. So make a formal complaint to the company, and if you don’t feel it has treated you fairly, you can then take it further. For full help see our Financial Ombudsman Service guide.

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My secret life as a BBC reporter (the videos)…

My secret life as a BBC reporter (the videos)…

My secret life as a BBC reporter (the videos)…

There’s a certain voice you feel you’re supposed to develop as a junior TV news reporter – especially at the BBC. The aim is to deliver the news, without allowing yourself to get in the way of the story. 

I’ve just been reminded of my own attempts at this. Thanks to a friend’s recent Googling, it turns out some of the clips still remain on the BBC’s servers (links in a moment).

It feels like a lifetime ago, almost a secret past in what can be the sausage factory of TV news. This was way back in the early noughties. I’d left the BBC Business Unit staff in 1999, having been hired as a reporter/producer, but never allowed to report.

Eventually, when I was turned down over doing some money interviews for local radio, it was finally admitted to me "we won’t put you on air anywhere as you’ve no on-air experience".

If that wasn’t a way of telling someone to leave, I don’t know what is. So I quit, having got a reporter’s job on Sky channel Simply Money TV – a great place to learn my on-air trade when virtually no one was watching – and where I later became the channel’s Money Saving Expert.

That channel went kaput after 18 months. So soon after I started as a freelance, mostly as the MSE but also, amongst other things, as a reporter on BBC1′s Business Breakfast.

There were two reporters on shift making packages for the next day, sharing one cameraman. One got the cameraman for the morning, the other for the afternoon. So sometimes, you’d have just a few hours to work out the story, set up the interviewees, then travel to them (the most time-consuming bit), film and get back.

That’s why one of my pieces involved me, in desperation, making the best of an electrical shop’s front window video camera!

Here are the clips. The video quality isn’t great, but it’s better than my dress sense at the time. What’s most bizarre is to listen to my voice fitting the reporters’ mould. Even if I said the same words now my delivery would be very different – far more relaxed and conversational.

PS. On Mrs MSE’s advice, I deleted some of my ‘BBC days’ stories from this post, about the terrible management culture and broken promises. So I won’t mention them.

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Get 5% interest on your ISA money

Get 5% interest on your ISA money

Get 5% interest on your ISA money

Update: 1 July 2014: ISAs have today transformed into NISAs (New ISAs), meaning everyone can now put £15,000 into cash or shares savings without paying tax on it. But despite this bigger allowance, the principles of this blog still apply.

The new cash ISA year started yesterday. Our best pick pays 2.75%, but some bank accounts pay up to 5% interest (before tax) as loss leaders in order to pull money in. So while savers’ money is generally nicer in an ISA in the long run. In the short term, the bank accounts win. Yet there is a way to get the best of both worlds…

As many have asked me which wins, cash ISAs or bank accounts? I wanted to bash out a logical path through this conundrum. To establish which is best, we first need to look at both contenders for your savings cash (or jump to ‘The best of both worlds’).

Contender 1. The top bank accounts pay up to 5% BEFORE tax

Bank accounts were once the worst place to stash cash, paying diddly-squat. Yet with savings rates at all-time lows they’ve seen an opportunity to use high rates to flog current accounts. So now, provided you’re willing to switch account (or you may already have one) they’re top interest payers.

Which one to choose depends on how much cash you’ve got (see the table below). You should focus on covering more of your money at a decent rate, rather than going for the one with the highest rate. For example, if you’ve got £12,000, Santander’s 3% beats Lloyds’ 4%.

For comparison, the top easy-access savings deal pays just 1.5%.
Current account In-credit interest (AER) After basic tax After higher tax Max interest each year (1) Intro bonus
Santander 123 (2) 3% on whole amount if you’ve £3,000-£20,000. Plus up to 3% bills cashback 3% becomes 2.4% 3% becomes 1.8% £450 (after fee) -
Club Lloyds 4% on whole amount if you’ve £4k-£5k (3) 4% becomes 3.2% 4% becomes 2.4% £157 -
Nationwide FlexDirect 5% up to £2,500 for 12 months, 1% after 5% becomes 4% 5% becomes 3% £98 (year 1) -
TSB Plus 5% up to £2,000 5% becomes 4% 5% becomes 3% £78 -
Halifax Reward £5/month as long as you stay in credit The £5 is after basic tax £3 (you’ll need to state the interest on your tax return) £60 £100
First Direct 1st Account None n/a n/a None £100
(1) Estimated post basic tax interest, if you always held the max balance or more. (2) Has £2/mth fee, but for most, cashback more than covers it. It pays 1% savings interest on £1k-£2k, 2% on £2k-£3k and nothing on above £20,000. (3) 1% under £2,000, 2% on £2k-£4k.

While the amounts here are limited, it is possible in all cases to open two of the same account (four with TSB), though in all cases one (two with TSB) must be joint accounts. But doing this is fiddly and you normally need to ensure you meet the minimum pay-in with each. Some accounts also require you to pay direct debits from each account.

Contender 2. The top pick cash ISAs pay 2.75% AFTER tax

A cash ISA is just a savings account where you don’t pay tax on the interest. From this tax year, which started yesterday, you can put in £5,940. However from July when the new NISA starts, you’ll be able to top this up to £15,000. From this point on I’ll assume you understand cash ISAs, if not please first read the full Top Cash ISAs guide.

  • Top easy-access – 1.6%. To compare like for like with the top bank accounts we need to look at the top easy access cash ISA (as all the bank accounts are by definition easy-access, meaning they don’t require any notice to take your cash out).

    Here, the winner is Santander’s 1.6% AER variable Direct ISA (minimum £500), which lets you put new money in and transfer old ISAs to up the rate.

  • Yet most people can earn 2.75%. People often plump for easy-access out of nervousness that they will need the cash. Yet unless you definitely need it and need it soon, you can earn much more in a fixed ISA – as unlike fixed savings accounts – by law they have to allow you access to your cash. They can however levy interest penalties for early withdrawals.

My top pick is the Coventry BS 4-year 2.75% cash ISA (min £5,760, no transfers) which allows you to close the account and withdraw early for a relatively low penalty, just 120 days’ interest.

A number crunch shows if you withdraw after a year, you’d effectively have got 1.85%, beating the best easy-access deals. After two years it’s 2.3%, beating the best two-year fix, and after three years, 2.45% which beats the other 2.25% best buys.

So which wins? Bank accounts or cash ISAs?

On rate, even after tax the top bank accounts ALWAYS beat the best easy-access deal, and some beat the top fixed deal too.

So if you’re only planning on having cash in an account for a short time – go for the bank account. However that isn’t the end of it, as I touch on in my Santander 123 v cash ISAs blog published in the last tax year, two weeks ago. You need to factor in the long term ISA gain.

While the interest given by bank accounts is usually ‘variable’, which means it can change due to interest rate moves or simply at the provider’s whim, most will tend to keep their offered rate for a while although at some point it’s likely they’ll reduce it closer to normal savings rates.

So the gain of cash ISAs is longer term. Of course easy-access cash ISA rates are variable too, but putting money in an ISA now means it’s not just tax-free this year, it remains tax-free year after year. So even if your provider’s rate drops, you can do a cash ISA transfer to shift it to a different account and retain the boon of its tax-free status.  

This means the benefit of stashing cash in an ISA each year is very important, especially for those with larger savings. In the long run when interest rates bounce back, you will then gain substantially from having as much of your savings as possible protected from tax.

So it is worth considering doing that even at the cost of giving up the short term interest rate boost from the loss leading high interest bank accounts.

The best of both worlds

There is a half way house solution for those who want to get the long term gain of filling up their ISA allowance to maximise tax free savings, and take advantage of the short term high rates offered by bank accounts – you can do both.

  • Step 1: Shove cash into the high interest bank account. Do this right now rather than open an ISA and don’t use your 2014/15 cash ISA allowance.

  • Step 2: A week before the ISA year ends, use the cash to open one. At the end of March next year – just move the cash out of the bank account and then open your ISA to fill the allowance.

This way you get to protect your cash from tax in the long term, but gain the higher, short-term interest now.

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The government’s energy changes mean fewer people will switch

The government's energy changes mean fewer people will switch

The government's energy changes mean fewer people will switch

The energy regulator Ofgem has today announced it is proposing to refer the energy market to the competition authorities. This report, which is only five years too late, contains the ‘shock’ fact there’s tacit co-ordination on energy prices – even though each year energy firms bleat like sheep and raise prices together.

Within the report, a key concern is the lack of competition and consumers switching. Yet it’s important to understand that both the government’s policies, and indeed Labour’s price freeze will have the net effect of massively reducing the numbers shifting to new energy suppliers.

Please don’t automatically read that as a criticism of the policies. Both parties aim to reduce the price (or at least reduce the increases in price) for the majority of people; but the majority of people don’t switch. Therefore what’s good for most isn’t necessarily good for switching.

So I thought I’d bash out a look at the key recent changes and the impact they’ll have on switching…

  • A reduced number of tariffs lessens pricing differentials.

    For the sake of transparency and simplicity the government has legislated that energy firms can only have four main tariffs.

    The net effect of this is a homogenisation of prices – in other words, we narrow the gap between the typical tariff and the cheapest. This is good news for many – it means 90-year-old grannies with no web access no longer pay quite so much as someone like me to boil a kettle.

    Yet as was very predictable (in fact I did predict it here) narrowing the differential decreases the gain from switching. So now I talk of someone on a typical tariff saving up to £150 a year, where in the past it was £250 or £300.

    This very obviously diminishes the switching appeal, although I’d still say it’s worth it as it only takes a few minutes – see Cheap Energy Club – but we can already see people are less keen to move when gains are smaller.

  • Price freezes mean people don’t switch.

    Nothing makes people switch more than price hikes. It acts as a call to arms. The last switching season (at the end of 2013) saw mammoth switching volumes. But as soon as that’s over, it’s very difficult to get mass switching action until another moment of price flux.

    Labour’s call to freeze prices, the governments reduction in green tariffs, the fact most energy firms have said they don’t intend to increase prices this year and SSE’s promise to freeze prices until 2016, quite simply means switching volumes will be tiny.

    In fact, this is counter logical, the best time to switch is now, when there is price stability as you get a more accurate comparison. Yet in general the public doesn’t react that way.

  • So in fact, freezing prices can mean some pay more as they accept the status quo rather than actively choose the market’s leading tariff. Though of course, if freezing prevents hikes for the majority – who wouldn’t switch anyway – there is a net gain.

  • Ofgem’s recently banned cashback switching incentives.

    While this is more minor, I do find it frustrating. It did this as a worry that people would be encouraged to move to an expensive tariff to get the upfront cashback. Somehow it missed the fact that some may’ve also been encouraged to move to a cheap tariff because they get cashback upfront.

    The right solution would’ve been to improve the way cashback and pricing was communicated, not to remove a switching incentive.

    Bizarrely though, it has decided that voucher incentives are fine. So a firm can’t give you £100 cashback, but it can offer near cash £100 Love2Shop vouchers, which can be spent in a huge range of high street stores. I’m not quite sure how different that is.

    At one point it looked like comparison site cashback switching would be banned too, but we successfully managed to argue to keep this as it applies across a large range of tariffs rather than a specific tariff (hence why Cheap Energy Club can still give £30 cashback and other comparison sites can too give cashback incentives via our special links).

Again, let me stress that (barring the cashback rule), I’m not saying I necessarily disagree with the policies, just that we need to acknowledge that if you set switching as a key performance indicator, you have to incorporate the impact of policy changes.

There are a couple of potential switching boosters. New smaller suppliers will garner support from more sophisticated consumers who want to make a deliberate stance to avoid the big six, although it’s important to note that on price these suppliers aren’t (and possibly with the current market structure aren’t able to be) necessarily cheaper. Perhaps the split of energy company vertical integration will help that.

There’s also the push towards collective switching where a trusted intermediary or local agency negotiates a deal with an energy supplier then gets people to sign up. It’s a great principle, the problem is that so far not one collective switch has been market leading on price – comparison site best-buys still beat them and I don’t see that changing. 

For example, we now have over 1m members of the Cheap Energy Club, yet big suppliers are simply unwilling to offer market leading deals without terrible conditions such as "you can’t then contact consumers for three years after the cheap fix ends to say switch again". We will keep looking for a good one though.

Yet these switching boosts are minor compared to the other factors so overall, I suspect we will see hugely reduced switching volumes in 2014 compared to 2013.

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