Celebrity endorsement – 'of course we can trust them'

I’m early, I know, but this is a topic which for me could turn into a real rant…

And this is why….

Three weeks ago the Office for Fair Trading said on their website that it is giving the leading 50 payday lenders, who make up 90 per cent of the market, 3 months to change their business practices or risk losing their licences.  The OFT said it uncovered widespread irresponsible lending and failure to comply with standards. So much so that they’ve been told to change their ways.

The report said there were problems throughout the entire lifecycle of payday loans, from advertising through to debt collection, and all across the sector, including by leading lenders that are members of established trade associations.

The OFT’s report cited the following areas of non-compliance:

  1. lenders failing to conduct adequate assessments of affordability before lending or rolling over loans (lend today, worry about getting it back tomorrow – haven’t we been here before?)
  2. failing to explain adequately how payments will be collected (an education issue – when are we going to teach our kids to understand how money works?)
  3. using aggressive debt collection practices (well we all knew that, but just wait until they sell on the debts they can’t collect – they won’t be selling them on to cuddly debt collectors)
  4. not treating borrowers in financial difficulty with forbearance (see 1).

None of this should come as any surprise to any of us.

What really angers me though is how a good many of these and similar lenders to the vulnerable use celebrities to endorse their products… to suggest that somehow because someone who’s in the public eye, but knows nothing about what they are talking about, promotes their product, it’s all ok, that’s it’s all legit.

Let’s look at some of the celebrities endorsing the payday, pawn broking and consolidation loan companies:

Nicholas Parsons and those annoying puppets – Wonga (APR 4,214%)
Carole Vorderman – Firstplus, click here
Kerry Katona – surely the ultimate in irony, she’s been personally bankrupt – nothing wrong with that but why oh why would she come out now after bankruptcy and encourage others to borrow? (sorry, I suspect we’ve got the answer there?) – Cash Lady (APR 2,670%) – click here for her cheesy advert and here for a written interview (it’s priceless, apparently she’s a normal Joanne in the street with everyday bills to pay, like school fees and nannies!)
David Dickinson – The Money Shop (go on, I dare you, click on this, turn the volume up, but make sure you’ve a bucket handy).

The worst?  Difficult choice, all the wide toothy smiles, cheesy straplines, bright blue eyes, sunshine, young good looking mums doing normal things yet worrying about trying to make ends meet, the sexiness of and ease of taking out a lone….mmm, now let’s see…. my vote goes to a firm of pawnbrokers who use a talking sock to sell its loans – click here.  Yuk!

I’ve been talking in schools a lot recently, warning against the perils of payday loans – the ease with which money can be borrowed compared to how difficult it is paying them off.  You see lending to the vulnerable is big business, about 7 million new payday loans are taken out every year.  And the numbers and volume of loans are growing.

When I talk to the kids I point out that although the adverts for payday loans suggest they are take out to cover emergencies – car repair, water leak, computer drink spillage, that sort of stuff – that’s not what they are used for in reality – they are used to bridge short term gaps in normal day to day spending …you know when you’ve too much month left at the end of your money…

I also teach them that interest on payday loans runs on average at £25 for every £100 loaned for 30 days.  Yes, £25 for each £100…for just 30 days.  Can I make a suggestion?

..that the next time you walk along your local High Street past one of these shops, you stop and look in their window at their terms.  But make sure that you do a few stretches and bends first as you’ll find them on a pop up banner at or below knee height…in very small typeface…below the smiley, cheesy grins in the advert above.  So don’t forget to take your glasses and the Voltarol.

The OFT report went on to say that up to half of payday lenders’ revenue comes from loans that last longer than a month.  You see most loans are rolled over or refinanced, several times over.  So it’s not £25 for every £100 loaned, it’s much much more.

I just love that Wonga advert on television, don’t you?  Next time it’s on, listen carefully.  They make a big, and positive, thing that one quarter of their customers repay their loan in full and within time.

Putting to one side the fact that if you were charged over 4,000% interest, you’d do your very best to repay it in full and on time, isn’t that great news that so many people settle ‘early’?

No, not at all…

You see, I say when I go into schools, ‘flip it, that means that three quarters of people, that’s three times as many people, don’t repay on time as do’.  It’s advertising talk, turning a huge negative into a positive, hoping that no one notices.  And most don’t.

So perhaps it’s not surprising that Wonga’s accounts for 2011 showed it made a profit of £44m on turnover of £184m?  Not a bad profit for a business which is obviously having to spend a lot of money trying to capture market share…

I wonder just how great a business Wonga and the other payday lenders would have if people used the loans for what they were (arguably) designed for?  Or if interest rates were more reasonable?  But then again, their profits are assured for years to come because of bad education, human gullibility and fallibility!

But there’s another point…

Perhaps we ought to be asking ourselves more just what sort of world we are bringing our children in to?

A good many of people I know who live abroad have told me their views of the UK… that the only growth area we have is in debt.   What a sad indictment of the land we live in, the times we’ve created.

Perhaps we ought to be asking our MPs why they are doing absolutely nothing about the horrendously high interest rates payday lenders charge the most vulnerable members of our society? And why more time and resources are not being given to improving our children’s financial education?

I know of several insolvency practitioners who are preparing to upset the payday lenders’ rates as an ‘extortionate credit transaction’ under the Insolvency Act – something they can do after the borrower has gone into bankruptcy.  The problem is the very trigger for doing so means the insolvency practitioner typically has no money to fund an action – it could be a case of David v Goliath – on something that’s a matter of principle for the lender but has a small effect in the bankruptcy in terms of its impact on creditor dividends.  But wouldn’t it be great if, for the first time in a long time, the insolvency profession were to take a moral stance that those in powers and Joe and Joanne Public aren’t overly interested in?  Then, perhaps the public may not be as shocked as we are by the level of debt people and this country are in.

If however, you feel as I do that something just has to be done about these payday lenders, how they operate and use celebrities’ ‘good names’ and ‘mis-information’ to promote their products, why not write to your local MP – here’s how you find their details.

By the way, we’re quieter on the formal insolvency front than we have been for a good while – this isn’t a bad thing because we’re doing far more ‘positive’ work right now.  But what it does mean is that we have spare capacity for any liquidations, administrations and receiverships you may need carrying out.  Which of your clients are struggling so badly that they either need to call it a day or lose debt?

I’d really appreciate your feedback, good or bad, on my e-mails.

Paul Brindley
Midlands Business Recovery

‘Doing more for Black Country Businesses’

Celebrity endorsement – ‘of course we can trust them’

I’m early, I know, but this is a topic which for me could turn into a real rant…

And this is why….

Three weeks ago the Office for Fair Trading said on their website that it is giving the leading 50 payday lenders, who make up 90 per cent of the market, 3 months to change their business practices or risk losing their licences.  The OFT said it uncovered widespread irresponsible lending and failure to comply with standards. So much so that they’ve been told to change their ways.

The report said there were problems throughout the entire lifecycle of payday loans, from advertising through to debt collection, and all across the sector, including by leading lenders that are members of established trade associations.

The OFT’s report cited the following areas of non-compliance:

  1. lenders failing to conduct adequate assessments of affordability before lending or rolling over loans (lend today, worry about getting it back tomorrow – haven’t we been here before?)
  2. failing to explain adequately how payments will be collected (an education issue – when are we going to teach our kids to understand how money works?)
  3. using aggressive debt collection practices (well we all knew that, but just wait until they sell on the debts they can’t collect – they won’t be selling them on to cuddly debt collectors)
  4. not treating borrowers in financial difficulty with forbearance (see 1).

None of this should come as any surprise to any of us.

What really angers me though is how a good many of these and similar lenders to the vulnerable use celebrities to endorse their products… to suggest that somehow because someone who’s in the public eye, but knows nothing about what they are talking about, promotes their product, it’s all ok, that’s it’s all legit.

Let’s look at some of the celebrities endorsing the payday, pawn broking and consolidation loan companies:

Nicholas Parsons and those annoying puppets – Wonga (APR 4,214%)
Carole Vorderman – Firstplus, click here
Kerry Katona – surely the ultimate in irony, she’s been personally bankrupt – nothing wrong with that but why oh why would she come out now after bankruptcy and encourage others to borrow? (sorry, I suspect we’ve got the answer there?) – Cash Lady (APR 2,670%) – click here for her cheesy advert and here for a written interview (it’s priceless, apparently she’s a normal Joanne in the street with everyday bills to pay, like school fees and nannies!)
David Dickinson – The Money Shop (go on, I dare you, click on this, turn the volume up, but make sure you’ve a bucket handy).

The worst?  Difficult choice, all the wide toothy smiles, cheesy straplines, bright blue eyes, sunshine, young good looking mums doing normal things yet worrying about trying to make ends meet, the sexiness of and ease of taking out a lone….mmm, now let’s see…. my vote goes to a firm of pawnbrokers who use a talking sock to sell its loans – click here.  Yuk!

I’ve been talking in schools a lot recently, warning against the perils of payday loans – the ease with which money can be borrowed compared to how difficult it is paying them off.  You see lending to the vulnerable is big business, about 7 million new payday loans are taken out every year.  And the numbers and volume of loans are growing.

When I talk to the kids I point out that although the adverts for payday loans suggest they are take out to cover emergencies – car repair, water leak, computer drink spillage, that sort of stuff – that’s not what they are used for in reality – they are used to bridge short term gaps in normal day to day spending …you know when you’ve too much month left at the end of your money…

I also teach them that interest on payday loans runs on average at £25 for every £100 loaned for 30 days.  Yes, £25 for each £100…for just 30 days.  Can I make a suggestion?

..that the next time you walk along your local High Street past one of these shops, you stop and look in their window at their terms.  But make sure that you do a few stretches and bends first as you’ll find them on a pop up banner at or below knee height…in very small typeface…below the smiley, cheesy grins in the advert above.  So don’t forget to take your glasses and the Voltarol.

The OFT report went on to say that up to half of payday lenders’ revenue comes from loans that last longer than a month.  You see most loans are rolled over or refinanced, several times over.  So it’s not £25 for every £100 loaned, it’s much much more.

I just love that Wonga advert on television, don’t you?  Next time it’s on, listen carefully.  They make a big, and positive, thing that one quarter of their customers repay their loan in full and within time.

Putting to one side the fact that if you were charged over 4,000% interest, you’d do your very best to repay it in full and on time, isn’t that great news that so many people settle ‘early’?

No, not at all…

You see, I say when I go into schools, ‘flip it, that means that three quarters of people, that’s three times as many people, don’t repay on time as do’.  It’s advertising talk, turning a huge negative into a positive, hoping that no one notices.  And most don’t.

So perhaps it’s not surprising that Wonga’s accounts for 2011 showed it made a profit of £44m on turnover of £184m?  Not a bad profit for a business which is obviously having to spend a lot of money trying to capture market share…

I wonder just how great a business Wonga and the other payday lenders would have if people used the loans for what they were (arguably) designed for?  Or if interest rates were more reasonable?  But then again, their profits are assured for years to come because of bad education, human gullibility and fallibility!

But there’s another point…

Perhaps we ought to be asking ourselves more just what sort of world we are bringing our children in to?

A good many of people I know who live abroad have told me their views of the UK… that the only growth area we have is in debt.   What a sad indictment of the land we live in, the times we’ve created.

Perhaps we ought to be asking our MPs why they are doing absolutely nothing about the horrendously high interest rates payday lenders charge the most vulnerable members of our society? And why more time and resources are not being given to improving our children’s financial education?

I know of several insolvency practitioners who are preparing to upset the payday lenders’ rates as an ‘extortionate credit transaction’ under the Insolvency Act – something they can do after the borrower has gone into bankruptcy.  The problem is the very trigger for doing so means the insolvency practitioner typically has no money to fund an action – it could be a case of David v Goliath – on something that’s a matter of principle for the lender but has a small effect in the bankruptcy in terms of its impact on creditor dividends.  But wouldn’t it be great if, for the first time in a long time, the insolvency profession were to take a moral stance that those in powers and Joe and Joanne Public aren’t overly interested in?  Then, perhaps the public may not be as shocked as we are by the level of debt people and this country are in.

If however, you feel as I do that something just has to be done about these payday lenders, how they operate and use celebrities’ ‘good names’ and ‘mis-information’ to promote their products, why not write to your local MP – here’s how you find their details.

By the way, we’re quieter on the formal insolvency front than we have been for a good while – this isn’t a bad thing because we’re doing far more ‘positive’ work right now.  But what it does mean is that we have spare capacity for any liquidations, administrations and receiverships you may need carrying out.  Which of your clients are struggling so badly that they either need to call it a day or lose debt?

I’d really appreciate your feedback, good or bad, on my e-mails.

Paul Brindley
Midlands Business Recovery

‘Doing more for Black Country Businesses’

The first golden rule if you've got big debt problems…

The first golden rule if you have major debt problems is:

‘you should first look at personal bankruptcy because if you’re really in a lot of trouble with money, it’s almost always the best option’.

But I hear you say ‘isn’t this is the opposite of what you’d expect?  And what most debt advisers will tell you?

Yes, that’s right, so why do I say this?

  • In three quarters of cases all you lose is your unsecured debts: you lose no assets, not even your home;
  • It costs less than a thousand pounds to go bankrupt, far less than almost all of the other solutions you may have available;
  • You’re in bankruptcy for just twelve months – it will pass very quickly indeed.  Compare this to how long you have been juggling your finances.  IVAs, often recommended by debt advisers, insolvency practitioners and their ‘finders’ are typically for 5 years – can you see forward this far? Can you guarantee you’ll complete the IVA?
  • Often bankruptcy is far less risky a solution than your other options for dealing with your debts because you can learn how the process works, you can assess the outcome before you go into it – that’s because there are far fewer areas for compromise or negotiation than other solutions you may be thinking about;
  • There are no messy negotiations with your creditors – if you petition yourself, your bankruptcy is simply imposed on them, your creditors don’t get a choice.  They do in other solutions;
  • In just one quarter of cases – Insolvency Service figures, not ours, the Official Receiver takes a share of your ‘surplus income’.  He does this for 3 years.  Compare this with a typical IVA – 100% of cases, 5 years.  But, and it’s very important you note this, in a bankruptcy no one can make you work as long or as hard as you did before.  If you want to take some time out to re-assess where you want to take your life, you can.  You can take a lower paid job that’s less stressful.  You can reduce your income for the year of your bankruptcy, avoid an ‘income payments order’ – and once you’re discharged, it’s too late for the Official Receiver to seek any money from you, you’ll keep all the money you earn for yourself.  It’s a case of one year of ‘pain’ for ‘later gain’.  Generally only those who don’t bother learning how ‘income payments’ work in practice end up paying them, so learn about them!
  • If you are lucky enough to enjoy a windfall, say a legacy or a lottery win, you’ll only have to pay it into the bankruptcy – that is to say you can’t keep it – if you became entitled to it in the year of your bankruptcy.  Become entitled after you’ve been discharged and you keep it all!  Compare this with IVAs – 5 years-  and DMPs -unlimited.  I presume you’ve not got a crystal ball?  The point is that by petitioning for your own bankruptcy can mean you actually protecting your family’s wealth!
  • Bankruptcy, unlike IVAs and DMPs, are a catalyst for change – you are likely to live your life differently and ditch any bad habits in a bankruptcy;

Come back here next week for golden rule number 2!

The first golden rule if you’ve got big debt problems…

The first golden rule if you have major debt problems is:

‘you should first look at personal bankruptcy because if you’re really in a lot of trouble with money, it’s almost always the best option’.

But I hear you say ‘isn’t this is the opposite of what you’d expect?  And what most debt advisers will tell you?

Yes, that’s right, so why do I say this?

  • In three quarters of cases all you lose is your unsecured debts: you lose no assets, not even your home;
  • It costs less than a thousand pounds to go bankrupt, far less than almost all of the other solutions you may have available;
  • You’re in bankruptcy for just twelve months – it will pass very quickly indeed.  Compare this to how long you have been juggling your finances.  IVAs, often recommended by debt advisers, insolvency practitioners and their ‘finders’ are typically for 5 years – can you see forward this far? Can you guarantee you’ll complete the IVA?
  • Often bankruptcy is far less risky a solution than your other options for dealing with your debts because you can learn how the process works, you can assess the outcome before you go into it – that’s because there are far fewer areas for compromise or negotiation than other solutions you may be thinking about;
  • There are no messy negotiations with your creditors – if you petition yourself, your bankruptcy is simply imposed on them, your creditors don’t get a choice.  They do in other solutions;
  • In just one quarter of cases – Insolvency Service figures, not ours, the Official Receiver takes a share of your ‘surplus income’.  He does this for 3 years.  Compare this with a typical IVA – 100% of cases, 5 years.  But, and it’s very important you note this, in a bankruptcy no one can make you work as long or as hard as you did before.  If you want to take some time out to re-assess where you want to take your life, you can.  You can take a lower paid job that’s less stressful.  You can reduce your income for the year of your bankruptcy, avoid an ‘income payments order’ – and once you’re discharged, it’s too late for the Official Receiver to seek any money from you, you’ll keep all the money you earn for yourself.  It’s a case of one year of ‘pain’ for ‘later gain’.  Generally only those who don’t bother learning how ‘income payments’ work in practice end up paying them, so learn about them!
  • If you are lucky enough to enjoy a windfall, say a legacy or a lottery win, you’ll only have to pay it into the bankruptcy – that is to say you can’t keep it – if you became entitled to it in the year of your bankruptcy.  Become entitled after you’ve been discharged and you keep it all!  Compare this with IVAs – 5 years-  and DMPs -unlimited.  I presume you’ve not got a crystal ball?  The point is that by petitioning for your own bankruptcy can mean you actually protecting your family’s wealth!
  • Bankruptcy, unlike IVAs and DMPs, are a catalyst for change – you are likely to live your life differently and ditch any bad habits in a bankruptcy;

Come back here next week for golden rule number 2!

Aynuk & Ayli and the donkey – what we can all learn from them

Hello
(for those readers who don’t know much about the Black Country, they’re comedians who are just normal local blokes, dialect included).
Aynuk popped around Ayli’s house.  ‘Aye up owr kid, ow’m ya doin?’.  ‘Ar’m sound, sittin ere waytin for a delivery’.  There’s a knock on the door.  The lorry driver walks in.  ‘Aye up Ayli, I’ve got sum gud and sum bad news’.  ‘Ow ar, giz us the good news fust’.  ”Ar got yer donkey’.  ‘Grate, and wot’s the bad news?’ ‘ The donkey’s jed’  (for those of you struggling so far, jed is ‘dead’.

Aynuk – ‘That bay no gud, what use is a jed donkey?  Go and tek im to Findus’.  Ayli – ‘Nah, I’ll ave im, just tek im raand the back, but I bay payin two ondred quid, I’ll giz ya fifty.’  ‘Lorry driver thinking of his options, an hour and twenty miles to the knackers yard, where he’ll get £20.  ‘Goo on, I’ll tek fifty quid.’

Two weeks later Aynuk goes around Ayli’s house again.  ‘Ow’d yow get on with that jed donkey?’  ‘Ar, bostin.  Sold fowr hundred roffle tickets at two quid each!’.  ‘But dey nowun complain?’ ‘Ar, one did bitterly, the winner’.  ‘An wot did yow do?’  ‘I giz im iz money back!’

There are several points to this story:

  • Just because you can’t see an opportunity that others can’t doesn’t mean that it doesn’t exist.  In fact it may well be a massive opportunity;
  • To take advantage of such opportunities, some nimble thinking and swift action is essential;
  • Just because almost everyone can’t see what’s not right in a situation that few know exists, doesn’t mean that it’s not a huge problem.

So why do I raise this right now?

Well, I think the professions are going through the biggest period of change in history right now – it will bring both significant pain and gain.  Couple this with the fact that most business people out there prefer to stick with pretty much what worked in the past (even if it doesn’t really work any more, and small tweaks give only false optimism) will mean that many traditional businesses, and with it their cash flows, will slowly deteriorate.  They will pay less for old style professional support that’s little more than the processing of paperwork.

That’s to say right now we have quite a toxic mix, for businesses and the professions alike.  But for the professions, they will suffer more than those who create real wealth – in nature predators suffer badly when there are even small changes in their prey.

So if you’re in a profession, what are you going to do you do about it?

This takes me on to another, related subject…

And I’m seeing more of this nowadays than ever…

Just because you’re, or your client is, a business owner doesn’t make you or them an entrepreneur.

And there’s a huge difference between the two.

One definition of an entrepreneur is “a person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk.”

They identify a need, then fill it.  It matters not what product, industry or market.  Accountancy, law, insolvency, whatever sector, it’s irrelevant.  The point is people’s needs are changing.  They want to buy different products and services how and when they want in a way that’s convenient for them, and that’s not often what or how people have provided them in the past.  Sure, many providers haven’t really noticed just how much the world is changing because ‘like attracts like’, there’s comfort to be gained by mixing with similar people.  That’s why insolvency practitioners huddle together.  And why they don’t see the need to change.  Others in other sectors are seeing the changes but are opting out because ‘it costs too much’ (put another way, they prefer to ignore the cost of not doing what they really need to simply because they think they can) or they’re simply not willing or able to change themselves.  Somehow for them to ignore what’s happening is deemed to be less risky.  Yet there’s risk in both doing and not doing.,.

Often I find that these people carry on drawing remuneration at or near the same level they always have done because ‘it’s what they expect/deserve/need*’ – delete as appropriate.  They do this regardless of whether the business can afford it or not.  They choose to pay themselves, to fund their present lifestyle, rather than invest in the future.  They hope for a miraculous return to ‘how things were’.

And I see this happening time and time again but not just in older style businesses, I also see it in senior grade managers, even directors who have come out of larger organisations to set up their own smaller business.  Given that more businesses fail in the first few years than any other time, it makes absolutely no sense whatsoever to laden up a new operation with unnecessary costs which frankly don’t drive it forward.  A car park full of BMWs is normally a good indication.

The problem is there are so very many people out there like this – that’s why Google tells me that the most searched for term driving traffic to my website is ‘illegal dividends’.  People who have leveraged their future for today.

And the fact there are so many people out there like that will hold back the UK’s emergence from this recession.  It will prevent the UK emerging as a strong entrepreneurial nation.

Who do you know who is borrowing to maintain his / her lifestyle, who should really be doing a hell of a lot more to future-proof their business?  Because if it’s not too late, I may just be able to help…

Finally, don’t forget that I’m here to fulfil your normal insolvency needs too – say acting as liquidator, receiver or administrator of an ailing or dead business.

And I always appreciate your feedback, good or bad, on my newsletter.

Paul Brindley
Midlands Business Recovery

‘Doing more for Black Country Businesses’