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Since 2008 (the height of the “credit crunch”), news... You're reading the blog post How the Financial Services Compensation Scheme (FSCS) can and can’t protect you that was written by and first published on Getting Loans and Credit & Managing...
Since 2008 (the height of the “credit crunch”), news of companies failing seems to have been a fairly constant feature in the headlines. Often those who lose out the most are the every day people who have put their trust into a financial business in order to increase savings or put money aside for retirement. That’s why something like the Financial Services Compensation Scheme seems like such a fantastic safety net for consumers. However, this is a scheme that has its limits. If you’re hoping to rely on protection like this when you’re investing or saving your money, it’s important to make sure that the products and companies you’re using are covered.
We have EU legislation to thank for the provision of the FSCS deposit guarantee scheme. All EU countries are required to set up at least one protection scheme. These days the amount protected is €100,000 (currently £85,000). The FSCS was set up to protect savings held in a UK registered bank, building society or credit union. For joint accounts the limit increases to £170,000. The scheme also covers a range of other financial products, including insurance policies and investments. If you’re claiming compensation with respect to an investment broker or management firm that has failed the maximum compensation limit is £50,000.
One of the major advantages of the FSCS is that the pay out to consumers is automatic so there is often no need to make a claim. Because all deposit takers – such as a bank – are required to maintain Single Customer View files, compensation can be automatically processed and paid out within seven days.
It was set up to provide essential cover for consumers but also extends to small businesses. In order for an enterprise to come within the remit of the compensation scheme, business turnover must be low.
There are situations when the FSCS does not apply:
Beaufort Securities was a broker dealer that failed in March 2018. Working with the company administrators, the FSCS arranged the transfer of money and assets belonging to more than 12,000 customers to another nominated broker so that investments could continue. It was also able to ensure that the majority of the affected clients were compensated for the costs of returning client money and assets.
The FSCS is a great scheme that provides automatic protection – as long as you fall within the limits of its remit. It’s always important to check that this is the case before you hand over any savings or cash.
You're reading the blog post How the Financial Services Compensation Scheme (FSCS) can and can’t protect you that was written by and first published on Getting Loans and Credit & Managing Money.
New research shows that the difference between actual and... You're reading the blog post Personal loan rates are still falling but be wary of teaser rates that was written by and first published on Getting Loans and Credit & Managing Money.
New research shows that the difference between actual and advertised lending rates has widened significantly. Since 2011, the discrepancy between what lenders advertise as loan rates to consumers, and what borrowers actually pay, has increased from 1% to 3%. This means that borrowers today are often paying much more for loans than they may have calculated based on initial advertising. This is despite the fact that personal loan rates have continued to fall for some time.
Despite the increase in the Bank of England Base Rate in 2018, personal loan rates have continued in a pattern of decrease over the past couple of years. Tesco, for example, recently decreased the rate on its £25,001 to £35,000 tier loan to 6.7% APR for a term of one to five years. Average loan rates decreased by around 3.9%, which was a positive development for borrowers looking to pay less for credit. The long-term fall in personal loan rates is, in part, a response by lenders to increased competition and an overcrowded market that sees many having to offer better deals to secure consumer applications. Loan rates tend to be a better deal than credit cards and there are some fantastically low deals available. So what’s the issue?
Recent research conducted for Shawbrook Bank by the Centre for Economics and Business Research (Cebr) found that, despite personal loan rates falling, consumers could still be paying more than anticipated for borrowing. The study identified that borrowers could be paying up to two and a half times the headline APR of an advertised loan. According to Cebr, the average advertised cost of a £9,000 loan in the UK is between 2.8% and 5.5%. In contrast, the average APR that borrowers are actually paying for a loan is 7%. The difference between the interest actually being paid on personal loans, on average, in the UK and the advertised rates is pretty substantial. It shows just how off the mark teaser rates can be in terms of the expectations that they create about what the costs of borrowing are.
The Cebr research identified a figure of £194 million as the cost to consumers of being accepted for a loan that doesn’t have the advertised interest rate. Perhaps more importantly, it also raises the issue of whether borrowers are actually able to make an informed decision about borrowing when the real costs of doing so are so much higher than those that are advertised. The difference between expectation and reality could be as much as a 150% increase in costs, which could unbalance even the most carefully calculated budget.
The reality of loans that cost more than the advertised rate is that borrowers may end up with larger monthly repayments to deal with. There is also the more sizeable interest burden which, depending on the size of the loan, could end up being substantial. Both could create affordability issues for consumers who may find that their new borrowing becomes too much for their monthly finances to handle.
The ability to actually get the teaser rates that are offered by lenders is dependent on key factors such as credit rating. A higher credit score will enable a borrower to get a lower interest rate on a loan. However, those without a perfect credit score may find themselves with borrowing costs that are significantly more than what was advertised with the loan. So, nurturing a positive credit history is going to be key for anyone looking to get anywhere close to the lower teaser rates that lenders offer. There are many different factors that might affect a credit score, including:
Although this is a positive market for borrowing personal loans there are a lot of different factors to consider. Key among these will be credit history and whether a borrower has a high credit score or not. For those who don’t score highly it’s always important to check the actual rates available, not just those advertised, to see what the reality of the costs of borrowing will be.
You're reading the blog post Personal loan rates are still falling but be wary of teaser rates that was written by and first published on Getting Loans and Credit & Managing Money.
There has been plenty of criticism of payday lending... You're reading the blog post Is the FCA about to clamp down on guarantor loans? that was written by and first published on Getting Loans and Credit & Managing Money.
There has been plenty of criticism of payday lending in recent years. Issues with charges and rolling up repayments, for example, motivated the financial regulator to get involved to restructure the industry. Other types of lending, such as guarantor loans, have – so far – not come under the same scrutiny or received such criticism. However, the FCA has recently indicated that it has concerns about the way that guarantor loans operate. In particular, the number of guarantors who end up stepping in to repay loans has been identified as troubling. Could this be a sign that the regulator is about to take action?
There are currently 12 guarantor lenders in the UK offering finance to individuals with less than perfect credit histories. The idea behind a guarantor loan is that a friend or family member – usually someone with a better credit score – guarantees the lending for the borrower. So, if the borrower is not able to make repayments on the loan then the guarantor will step in and ensure that the loan is repaid from their own pocket. The advantage of guarantor loans is that people with bad credit can borrow, both to obtain finance and also to start rebuilding their own credit record by keeping up with repayments.
Affordability of lending has become increasingly important in every corner of the credit market. Ensuring that borrowers have the means to make repayments without undue pressure on their finances is essential for lenders who are looking to lend in line with best practice guidelines and regulations. In the context of guarantor loans, an increasing number of guarantors are being forced to step in and make repayments on behalf of borrowers – and this has attracted the attention of the FCA. This, it says, is an indication that loans may not be being approved on a true affordability basis.
Amigo Loans – which recently floated for £1.3billion on the stock market – is the largest guarantor loans lender by far. According to official Amigo statistics less than 10% of the loans it supplies to borrowers are repaid by a guarantor. However, it’s worth noting that Amigo recently got into some hot water over its targeting of “pilot loans” and this has also made the FCA sit up and take note. These are loans that are made available to borrowers who have a credit score so low that mainstream credit is out of reach. Pilot loans typically have very high interest rates – Amigo charges 49.9% – and in the year to March 2018, £99 million worth of pilot loans were issued by Amigo. Many of the new loans were thought to have been part of a drive to increase the size of Amigo’s loan book before its recent flotation. It’s behaviours such as this, as well as concerns about affordability for consumers, that have started to attract attention from the FCA.
The FCA has already begun looking into the guarantor loans industry in more detail. Recently, the regulator published guidance for lenders looking to take a payment from a guarantor where a borrower is in default, for example. The guidance covered issues such as whether or not a lender is required to let a guarantor know before taking the payment. Default procedure is just one of the issues surrounding guarantor loans that the FCA appears to be getting increasingly concerned about. Others include:
Currently, there are no new restrictions to consider for the guarantor loans industry but that could be about to change. With the FCA interested not only in the cost of borrowing this kind of credit but also affordability, and whether guarantor loans work as a financial product, the industry could be about to go through a similar period of disruption as payday lenders have experienced in recent years.
You're reading the blog post Is the FCA about to clamp down on guarantor loans? that was written by and first published on Getting Loans and Credit & Managing Money.
It’s been more than a decade since interest rates... You're reading the blog post The lessons from the London Capital & Finance debacle that was written by and first published on Getting Loans and Credit & Managing Money.
It’s been more than a decade since interest rates held any real potential for savers. As a result, any financial products that have a substantially higher rate of interest seem very attractive. London Capital & Finance plc (LC&F) offered a “Fixed Rate ISA” product with returns of 8% for those who were wiling to lock their money in for at least three years. However, the firm has now gone under and has taken most of investors’ money with it. So, what are the lessons that can be learned?
Essentially, what LC&F was offering was a high-risk bond scheme that generated £236 million in investments after an intensive marketing campaign that included lots of content on Facebook. The company has now collapsed and is in the hands of administrators as a result of not being able to pay its debts. Unfortunately for those who invested with LC&F it’s thought that the bondholders could get as little as 20% of their money back.
Although the LC&F said that it was targeting experienced, high net worth individuals with its financial products, in reality many of those who ended up putting their money into it were actually inexperienced investors. In fact, potentially up to 50% of those who invested arrived at the product via a basic online search for terms like “best ISA.” Search engines took them to two “comparison” websites – topisarates.co.uk and bestsavingsrates.co.uk. Both of these websites rated LC&F right at the top of their comparison lists.
Both of these websites are owned by a company that is owned by Paul Careless. What’s problematic is that Mr Careless also owns another company that was paid £60 million to handle the marketing for LC&F, indicating that the “comparison” websites may actually have been nothing more than a marketing tool. The connection is of great concern to investors who have now lost their money as a result of the collapse of LC&F and many feel they were misled into believing that the investment had been independently compared and highly rated.
LC&F loaned the money it collected from investors to 12 companies but would have had to have seen a huge return on it in order to be able to deliver the 8% interest it advertised. According to administrators it’s going to be difficult to get much of the £236 million that was invested back. Plus, the investments weren’t regulated, which means they are unlikely to be covered by the Financial Services Compensation Scheme (FSCS) – so far there has been no indication that the scheme will pay out.
For those who invested in LC&F the outcome looks bleak with no compensation scheme cover and a likely recovery of just 20% per investment. Hopefully the lessons that can be learned from the debacle may prevent a similar situation arising in future.
You're reading the blog post The lessons from the London Capital & Finance debacle that was written by and first published on Getting Loans and Credit & Managing Money.
Whether you’re streaming films, working from home or gaming,... You're reading the blog post What compensation can you get for poor broadband service? that was written by and first published on Getting Loans and Credit & Managing Money.
Whether you’re streaming films, working from home or gaming, poor broadband service can be incredibly frustrating. Buffering, dropped connections or less than impressive speed all affect customer experience and may mean you’re just not getting value for money. According to Ofcom, only around one in seven consumers who has had problems with their broadband service has received compensation for issues. Often, the compensation that is provided is in very small amounts. However, things should be about to change thanks to a new scheme that means customers are automatically compensated for certain problems that affect their service.
Ofcom has established a new scheme that is designed to ensure that consumers who are having a bad broadband experience are automatically compensated. The scheme is not compulsory and only those providers who sign up to it are covered by its requirements. So far, BT, Sky, TalkTalk, Virgin Media and Zen Internet have signed up for the scheme and other providers, such as EE, Vodafone and Plusnet have indicated that they are intending to do so. The voluntary automatic compensation code of practice scheme was first announced in November 2017 and came into force as of April this year.
It is predominantly aimed at issues that may arise with respect to faults. So, for example that could be repairs that have been delayed by engineers leaving a customer without service. It might be a newly purchased service that doesn’t start on time or engineers who don’t show up. There are more than 7 million cases where this happens each year so Ofcom considers the issue an important one.
There are three different levels of compensation depending on the issue that the customer has had to deal with, for example:
Currently, TalkTalk, Sky, Zen Internet and BT all provide their broadband services via the BT Openreach network. If the network has issues that cause problems for the providers, an agreement has been entered into that Openreach will compensation those providers. That money can then be used by the providers to compensate customers, as indicated above. Other providers, such as Vodafone, plan to start paying customers in the same way later this year.
According to Ofcom, the easiest way to ensure that customers start to receive compensation as quickly as possible is via a voluntary scheme such as this. Because so many of the big providers have signed up for the scheme 95% of homes in the UK should be covered by the right to compensation.
Currently, the scheme doesn’t cover compensation for broadband speeds that aren’t quite up to scratch. If you feel like you’re having issues with broadband speed then there are a number of steps you can take:
If you’re having problems with your broadband service there are steps you can take to remedy the situation, from the new compensation scheme, to making a complaint about speed. And, of course, you can always switch to a provider with better service.
You're reading the blog post What compensation can you get for poor broadband service? that was written by and first published on Getting Loans and Credit & Managing Money.
According to figures from the Office for National Statistics,... You're reading the blog post Feeling comfortable at work? Here’s what happening in the UK jobs market. that was written by and first published on Getting Loans and Credit & Managing...
According to figures from the Office for National Statistics, the level of employment in the UK is currently at a record high. Despite the impending doom that many have forecast as a consequence of Brexit from the figures it would appear that, in terms of jobs at least, the economy is thriving. However, some have questioned the current boom in job creation as a false positive in terms of whether or not it’s an indicator of economic health – so, what’s really happening in the UK jobs market?
The most recent numbers show that unemployment has hit record low levels of 4%. In the three months running up to January 2019, the number of unfilled vacancies increased by 16,000 to 870,000. This comes in the context of a slowdown in growth, both in terms of the UK’s economic growth and growth on a global level. For example, in 2018, the UK economy grew by just 1.4%, which is the weakest level of growth that the economy has seen in six years. The increasing number of vacancies is putting pressure on employers, especially in industries such as IT, health and food services, which are some of the sectors that have been the most affected. Many are finding it difficult to hire the volume of workers currently required to fill available positions. As a result of this new market – a candidate’s market – total average weekly wages rose by 3.4% in the year to December 2018.
Although the figures seem to indicate that everyone is profitably employed, all is not quite as it seems:
Another cause of the sharp increase in employment is being attributed to one of the less obvious consequences of Brexit. Bank of England rate-setter Gertjan Vlieghe suggested that, as a result of the uncertainty over Brexit, many companies are not investing in plant, machinery and efficiency driving technology, as they normally might in order to meet the needs of customers. Instead, businesses are hiring people to enable them to keep up with customer demand. Although this might seem like a positive step, the reasoning behind it is that people are much easier to hire and fire. Corporate spending has continued to fall over the past year and British workers are relatively easy to get rid of. If a Brexit shaped recession starts to bite, many businesses would find it difficult to reverse investment decisions in technology, plant or machinery but could reduce a workforce without too much effort. So, rather than being a sign of a thriving economy, according to Vlieghe, the increase in employment could actually be a sign of economic stagnancy.
It’s often difficult to determine what’s really going on with the UK jobs market purely from employment figures alone. As a result of all the different factors involved, from growth rates to the changes in types of employment we have seen in recent years, it’s clear that positive predictions need to be taken with a pinch of salt.
You're reading the blog post Feeling comfortable at work? Here’s what happening in the UK jobs market. that was written by and first published on Getting Loans and Credit & Managing Money.
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