Money shops

[Canopus]

I recently read that "money shops" that seemed to be in every High Street during the early 1990s are making a comeback. The two most popular services they offer are cashing cheques and offering small short term loans at high rates of interest. What I want to know are:

 

1. Is it difficult to open a bank account? Nobody I know has had any difficulty in opening an ordinary or savings account with any of the High Street banks.

 

2. Is it difficult to get a credit card? They seem to be given to almost anyone nowadays which probably explains why Britain is the number 1 nation for credit card debt. 20 years ago credit cards were difficult to obtain luxuries.

 

Does anybody here ever use these "money shops" ?

[Elanor]

Hi Canopus

 

It is difficult to open a bank account if you have been made bankrupt, and money shops like these will cash cheques (for a price). Also, if your bank account is heavily overdrawn, you might use a money shop to cash a cheque rather than put it into your bank account - because that way the money goes to you, rather than to pay off your overdraft.

 

Perhaps the increasing number of these shops shows that more and more people are running into money problems.

 

Elanor

[stressed out mum]

I quite agree with you Canopus. I have seen these places popping up in our highstreet and also what looks like a pawnshop.

 

I got my first mortgage with my b/f 22 years ago and the building society said that they only agreed to a certain amount of mortgages per month and so we may have to wait until the following month. They were also not sure they would allow us to have the amount we was asking for!

This meant that we would have lost the house we were trying to buy.

Now it seems I can get a mortgage for what seems like an obscene amount of money.

 

It's so easy to get into debt in this country.

[Tez]

Hi Canopus,

 

I used to work for one of these companies. They sell to people who are predominantly unemployed or on very low incomes. Even where these people have bank accounts, they are usually basic accounts only, and therefore the banks do not see them as a good risk for credit cards or their lower interest loans. Many have CCJs or defaults, often through no fault of their own, but due to totally unforseen changes in circumstances

 

As Eleanor says it is difficult to cash a cheque if your account is overdrawn. Since the government started insisting that all benefit money was paid straight into bank accounts people on low incomes have found things even more difficult. If they overdraw by any amount, even less than ?!, they are immediately charged a ?30 fee. Since their normal income is only about ?70 per week this causes them an enormous problem. They therefore need the short term loans which because they are high risk are also high interest.

 

The company I worked for is one of the most successful in the industry but it was rare for a customer to pay the loan repayments on time. It was common place for them to repay a 23 week loan over 2 years. They did not incur any penalties or additional interest charges on this since the interest was all front loaded although there were small rebates for very early repayment. The actual apr paid was therefore, in most cases, rather lower than the advertised apr. The only people paying the advertised rate were those who paid correctly to term and these represented less than 1%. Approximately 50% of the loans are never repaid in full and this is rarely pursued by legal action because they just do not have the money to repay them or the assets for the bailiffs to seize. Moreover, since most are on benefits, the courts cannot order that the money be stopped from their income.

 

Most of these companies do not make their money from their high interest short term loans, for many this is a loss making business, particularly as many of the loan repayments end up having to be collected weekly from the customer's home, but it does give them an in to selling other more profitable goods. Most of the profits come from their debt collection businesses where they buy in bad debt and use selfemployed agents on a commission only basis to recover. Many of these debtors are the very same customers that they have given short term loans to so the two fit well together. Many of these companies get very bad press. Some of it is deserved, much of it isn't.

Edited February 10, 2006 by Tez

[littlenemo]

We've had one just down the road for the last 3 years, and I've never seen anyone in it.

 

But

1) I had problems opening a bank account after going into voluntary liquidation (but wasn't surprised). Another time I opened a business account where the name of the company started with a number. It took them 9 months to find the details and the money I opened the account with! . Needless to say, the business failed and I couldn't claim against the bank.

 

2) We've just got a credit card after trying for over 10 years. We refused to pay 80% of our total annual income on the Poll Tax and so ended up with a negative credit rating! No-one had ever heard of a credit rating being a negative number before!

 

The most bizarre part is that neither Zemanski or I have ever been in debt. I used to think this was a good thing, but when trying for a credit card, the bigger your debt, the better your chances of getting one . Apparently it makes financial sense, even if not common sense.

[Canopus]

The most bizarre part is that neither Zemanski or I have ever been in debt. I used to think this was a good thing, but when trying for a credit card, the bigger your debt, the better your chances of getting one . Apparently it makes financial sense, even if not common sense.

 

For years I have wondered exactly how credit ratings really work. Credit checking agencies are private companies and not some government organisation or your bank or credit card company.

 

I managed to get a Barclaycard no problem when I was an undergrad. Was I given preference because I took out a student loan and stored it in a high interest rate savings account? Legally I was in debt but officially I wasn't.

[Kathryn]

I've lost count of the number of credit card offers that drop through my door. I think it's far too easy to get them and to allow debt to spiral out of control.

 

There are two types of people:

 

those who read the small print on the application form,

 

and those who think "Yippee! Free money!"

 

[Canopus]

I have seen these places popping up in our highstreet and also what looks like a pawnshop.

 

Is this telling us that a recession has started?

[littlenemo]

Not if we can keep borrowing our way out of it...

[Canopus]

I have been informed by an economist that Britain has been in recession for about 4 or 5 years now, but the recession has been masked by easy credit and rising house prices. The British use house prices as a barometer of the economy thinking that rising house prices indicate an economic boom. The amount of debt in Britain is beyond belief and somehow must be paid back unless house prices continue to rise. The trouble is, house prices are FALLING across most of the country and the amount of unsold houses on the market is rising. A house price crash is almost certainly going to happen and your house could be worth only half as much as it is today in 3 years time. Ignore anyone that says a house price crash can't happen because interest rates are low compared to the 15% we had during the early 1990s. The trigger this time is debt.

[littlenemo]

Spot on. And the irony is that as more houses are reposessed and come onto the market, this will flood the market and prices will fall further. So interest rates will have to go up to keep the lenders going, so more people will be unable to pay and we get back to line 1.

And it all ends in tears.

Traditionally the way out of this unenviable future is to expand the empire or discover a massive natural resource. Neither looks terribly likely this time.

[Canopus]

Repossessions are increasing. The buy to let craze of the past 7 or 8 years has now come to an end and some mortgage lender's are no longer offering buy to let mortgages. Many landlords who bought houses in the past few years are finding that their investments are lossmaking so are having to sell up. Soon there will be lots of former buy to let houses dumped onto the market and that will depress prices.

[Tally]

Mortgage lenders offer to lend you more than you need. You can get 110% mortgages (so you can buy furniture), you can special offers for 1st time buyers where they add the moving costs to the mortgage. When we got our mortgage they were trying to get us to borrow more, they couldn't believe that we were happy not to decorate it throughout before we moved in. My husband's friend has just bought his 1st house. He's borrowed more than the value of the house so he can buy brand new furniture for every room. I hope he likes the furniture cos he's going to be spending a lot of time with it, being as he can't afford to go out any more. I think that this is going to cause serious problems in the future, which is why we didn't do it.