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Consumer credit licenses
Dec. 21st, 2011 09:44 pmIf you've watched TV recently, you've probably seen an advert for one of the 'payday loan' companies. This is the most recent not-quite-a-scam, following on from the 'buy your gold at a stupidly low price' dealers.
However, were you aware just how much it costs to be 'consumer credit licensed'? As a sole trader, it will cost you the princely sum of £585. If it's a company, that goes up to a whole £1225.
( http://www.oft.gov.uk/OFTwork/credit-licensing/fees-refunds-payments/#named2 )
That ... well, that really doesn't buy an awful lot of regulation. Which is part of the reason the 'payday loan companies' are proliferating in this country - because it's at least relatively easy to set up, and really quite hard to fund effective regulation.
Alongside this, it probably hasn't escaped your notice, that interest rates are really low at the moment - savings accounts are just about tipping 3% interest, but ... frankly, that's a fairly lousy rate.
I wonder if the time hasn't come for peer-to-peer finance. Sort of like a 'lending market place' offering the opportunity to lend and borrow.
Offer out 'lending amounts' in small slices, to minimise individual risk, but still be in a position to - effectively - supply short-medium term loans (probably unsecured) and sit comfortably in that niche that means the lender gets a higher return than a 'savings account' in return for a little more risk.
And a borrower has access to credit that doesn't charge them 5000% APR.
What do you think? Would you make use of such a facility, if it were an option? To put down - say - £1000, to be lent out in £10 (or smaller) slices to individual borrowers, at interest rates that are 'competitive' with the existing loan/overdraft market?
Bank overdrafts clock in at 'around' 15-20%.
Credit card borrowing can be up to about 30%.
Bank loans might be in the 6-12% range.
Even mortages are generally (outside of fixed term) 4-5% (plus usually an arrangement fee).
And 'short term' credit, such as unarranged overdraft and those payday loans usually attract relatively fierce rates.
Now, you'd be trading off some risk in return for the increased rates (apparently pay day loans experience a 10-20% default rate) - there is a possibility of loss, and perhaps not full utilisation of the money (e.g. if it's not being 'borrowed' it won't necessarily be attracting interest.).
But the idea would be that you'd be able to specify acceptable borrowing quantity, interest rate and term, and probably a max proportion per individual, and a ticky box list of what you'd consider 'acceptable' in terms of who to loan to. (credit scoring, reference, security, er... whatever - but these'd be rolled into the price, in terms of applying a cost to the borrowing)
The individual would be able to 'request a quote' indicating approximate term of borrowing, and thus repayment rates (and in turn, interest). Which'd be calculated based on how many people were prepared to lend, and at what rate. (And probably be a smidgin in the middle to cover operating costs, credit scores, etc. ).
However, were you aware just how much it costs to be 'consumer credit licensed'? As a sole trader, it will cost you the princely sum of £585. If it's a company, that goes up to a whole £1225.
( http://www.oft.gov.uk/OFTwork/credit-licensing/fees-refunds-payments/#named2 )
That ... well, that really doesn't buy an awful lot of regulation. Which is part of the reason the 'payday loan companies' are proliferating in this country - because it's at least relatively easy to set up, and really quite hard to fund effective regulation.
Alongside this, it probably hasn't escaped your notice, that interest rates are really low at the moment - savings accounts are just about tipping 3% interest, but ... frankly, that's a fairly lousy rate.
I wonder if the time hasn't come for peer-to-peer finance. Sort of like a 'lending market place' offering the opportunity to lend and borrow.
Offer out 'lending amounts' in small slices, to minimise individual risk, but still be in a position to - effectively - supply short-medium term loans (probably unsecured) and sit comfortably in that niche that means the lender gets a higher return than a 'savings account' in return for a little more risk.
And a borrower has access to credit that doesn't charge them 5000% APR.
What do you think? Would you make use of such a facility, if it were an option? To put down - say - £1000, to be lent out in £10 (or smaller) slices to individual borrowers, at interest rates that are 'competitive' with the existing loan/overdraft market?
Bank overdrafts clock in at 'around' 15-20%.
Credit card borrowing can be up to about 30%.
Bank loans might be in the 6-12% range.
Even mortages are generally (outside of fixed term) 4-5% (plus usually an arrangement fee).
And 'short term' credit, such as unarranged overdraft and those payday loans usually attract relatively fierce rates.
Now, you'd be trading off some risk in return for the increased rates (apparently pay day loans experience a 10-20% default rate) - there is a possibility of loss, and perhaps not full utilisation of the money (e.g. if it's not being 'borrowed' it won't necessarily be attracting interest.).
But the idea would be that you'd be able to specify acceptable borrowing quantity, interest rate and term, and probably a max proportion per individual, and a ticky box list of what you'd consider 'acceptable' in terms of who to loan to. (credit scoring, reference, security, er... whatever - but these'd be rolled into the price, in terms of applying a cost to the borrowing)
The individual would be able to 'request a quote' indicating approximate term of borrowing, and thus repayment rates (and in turn, interest). Which'd be calculated based on how many people were prepared to lend, and at what rate. (And probably be a smidgin in the middle to cover operating costs, credit scores, etc. ).
