Speakers' Corner

Peer-to-peer lending challenges tigh-fists banks

More Britons than ever are circumventing the banks through peer-to-peer lenders, in a bid for higher returns on their cash and better borrowing deals. And the trend is likely to continue, writes www.money-marketuk.com editor Julia M Thompson.

Peer to peer lending is when those with money lend to those who need it. It allows consumers to bypass the banks - lenders get a better return on their cash, while also controlling their risk, and borrowers can get their hands on the money they need at more favourable interest rates.

For peer-to-peer (P2P) site RateSetter, the figures speak for themselves. In just over four months of trading, it has matched a little over £2m in loans at an average £4,300 per loan. Annual returns for lenders for monthly access stand at 3.6 per cent and for a three-year fixed loan, returns to l enders have been 7.8 per cent a year.

Rhydian Lewis, CEO of RateSetter, says: “The market for peer-to-peer lending is operating in something of a perfect storm.

“Low returns for savers in conjunction with public dissatisfaction with the banks means that creditworthy individuals and shrewd savers alike are looking for alternative investment opportunities.”

Heavyweight Zopa.com pioneered P2P borrowing and lending worldwide when it launched its website in 2005, urging ordinary people to bypass the banks and lend to other consumers at rates they agree between themselves.

With no bankers, says Zopa, both borrowers and lenders get a much better deal. Its total lending has rocketed to £121m and average annual returns, after fees and before bad debt, are 7.8 per cent over the last 12 months.

“We have demonstrated that consumers get a great deal out of peer-to-peer lending both from the lending and borrowing side. We are very real competition to the banks in the unsecured marketplace,” says Zopa founder and CEO Giles Andrews.

With Zopa, borrowers enjoy rates some 20 per cent below the best they can get from a bank, and its default rate is at the lowest level of any personal loan book in the UK – just 0.7 per cent as at January 2011.

Lenders can spread their cash across at least 50 borrowers provided they lend more than £500 in total.

But there are some caveats. P2P sites are not usually regulated by the FSA (Financial Services Authority) and are not part of the Financial Services Compensation Scheme.

“The potential higher interest rates are not totally risk-free – most peer-to-peer lenders are not currently regulated by the FSA and there’s no 100 per cent guarantee that you’ll get your money back,” says Andrew Hagger from moneynet.co.uk.

As an investor, says Hagger, if tempted by returns of 6 to 9 per cent, “don’t put all your eggs in one basket. Perhaps test the water with an initial investment and see how it performs.”

“We currently only approve approximately 12-13 per cent of borrowers – our Lenders are getting exactly what they’ve asked for: creditworthy borrowers that the banks would like to lend to,” said Alex Gower from RateSetter.

The success of trend-setter Zopa has sparked a clutch of new sites in the last few years – RateSetter in 2007; Fundingcircle.com, Yes-secure.com and Quakle.co.uk in 2010. Fundingcircle says it will only allow established and creditworthy businesses to borrow.

But with the expected rise in P2P business and new sites, both Zopa and RateSetter think there is need for tighter controls.

Gower says: “We believe that the peer-to-peer market needs more regulation to protect itself from unscrupulous operators entering the market.

“However it’s important to recognise that we do not operate as a bank: we facilitate direct loans between lenders and borrowers, and manage the legal and financial processes for our clients.”

So banks, beware, as consumers challenge your services. “There is no reason why peer-to-peer lenders couldn’t take half of the UK market,” says Zopa’s Andrews.

How MPs are making an illegal U-turn on protection for innocent motorists

Motoring lawyer Jeanette Miller is the senior partner of Geoffrey Miller Solicitors, one of the UK’s only firms specialising solely in defending drivers facing prosecution for motoring offences. She says the government is making an illegal U-turn on protection for innocent motorists

I currently have a client on trial for the serious criminal offence of failing to provide a specimen of breath without reasonable excuse.

This chap was the designated driver on a night out with friends when he was caught up in the middle of a fight between one of his mates and a group of bouncers. He was later stopped by police while driving to hospital for treatment on a suspected broken nose and broken ribs – and his injuries were so severe, he was unable to blow into the breathalyser.

Despite his offer to provide a blood or urine sample, he was charged nonetheless.

The man – let’s call him Mr Lucky – was advised to get legal help to defend his case, so he approached a local non-specialist law firm for representation under the legal aid scheme, as he couldn’t afford a privately paying motoring law firm such as mine.

When it came to his trial date in June, Mr Lucky’s lawyers sent a trainee to court who said her firm were in difficulty representing him due to problems in preparing the case. We are not sure what those problems are because when we eventually received their file, no work at all had been done. So, again, thankfully, the court gave Mr Lucky an adjournment and said, “Get yourself a specialist motoring offence solicitor, and come back for your trial in August.”

So Mr Lucky called me. He told me his story and I explained how much we would charge (almost four times what a £60-an-hour legal aid lawyer costs, but around the same level a personal injury lawyer can recover for their time).

He cannot afford to lose his licence or get a criminal record and so he has spent his life savings and borrowed money from relatives to pay his legal fees and we are now preparing his case for trial. I am confident that he will be found not guilty.

Despite the misfortune, I have referred to my client as Mr Lucky because when we do secure his acquittal, he will be entitled to recover the majority of his legal costs from the court. However if Mr Lucky was in this situation in 2012, even if he is found not guilty, he would only be able to recover a very small proportion of his legal fees.

This is because the government plans to introduce new rules to limit cost recovery in this situation to legal aid rates (£60 per hour) regardless of the actual charges incurred in proving your innocence.

As this case shows, capping cost recovery would be hugely unfair.

What is even more upsetting is that when the Labour government suggested this in 2009, today’s Tory ministers openly supported our campaign to block these proposals. Now the coalition appears to have done a U-turn, and are using some misleading spin to justify their changes.

Ministers say this cap is needed to stop celebrities “coining it in” when they use loophole lawyers to get off speeding charges on technicalities.

This is not who it will truly affect though: it is clients like Mr Lucky. It will be innocent people who are not criminals who suffer; people who are faced with crazy prosecutions because of sometimes over-zealous police officers, and a Crown Prosecution Service with many solicitors who have poor judgement and lack commercial and common sense.

A petition we set up in 2009 to block Labour’s similar proposals was signed by 22,000 people. We were supported by senior Tories. Now they are going back on their word.

The coalition has snuck these proposals into a parliamentary bill dealing with a host of other proposed changes to also reduce legal aid budgets. They probably assumed that this issue would be lost in the detail, but they were wrong.

This U-turn will eradicate access to justice for those who need it most: innocent defendants who cannot afford to pay their legal fees, but who would get virtually nothing back when they are eventually vindicated.

Why is getting rid of rubbish such a chore?

Can ridding your home of unwanted items make you a tidy profit? Or will you have to pay for the privilege?

By Maria McCarthy

I've been trying to get rid of a knackered old armchair recently Given it's saggy-seated state I realised that it might not get snapped up on eBay. But the experience has been so challenging I've felt as though I was attempting to offload weapons-grade plutonium.

My first approach was to local charities – but as it's too old to have a fire certificate they couldn't accept it. And taking it to the local recycling centre myself wasn't an option because it was too large to fit in my car.

Council charges

Then I tried my local council, who said they would charge £32 to take away up to five items of furniture. They wouldn't be able to pick the armchair up from my flat; their insurance doesn't cover entering anyone's premises so I'd have to manhandle it downstairs myself.

Even though it would work out expensive for just one item, I was open to that idea until I heard that their collection days were Tuesday or Thursday and they couldn't tell me in advance which it would be. I didn't think that having an old armchair sitting in the communal garden, possibly for several days would make me very popular with my neighbours, so I declined.

Then I asked a local handyman to take it in his van. But he said there could be a problem at the recycling centre if he turned up in his business van because they might see him as bringing “trade waste” and refuse him entry.

Getting desperate now, I toyed with the idea of taking an axe to the wretched thing and getting rid of one chunk a fortnight in my regular rubbish collection. It seemed absurd that the process was so difficult and I felt sorry for elderly or disabled people who would struggle with this situation far more than me.

As it happens, my story has a happy ending as a friend who is taking an upholstery evening class was delighted to take it off my hands. But other than that, what are the options for getting rid of bulky household rubbish such as old furniture and broken washing machines?

Get online

What you see as rubbish could be valuable to someone else, so try websites like ebay and Gumtree. Offer it for sale initially and see if you can get some money for it.

You can offer goods for free via Freecycle. It can be excellent but some people report problems with timewasters who don't show up.

Your local authority

They don't have a responsibility to collect bulky items, though some of them do anyway. Charges and collection criteria vary so call up and check with your council. Some recycling centres may accept rubbish brought in a handyman's van if you call beforehand and confirm that it belongs to you.

Private waste collectors

There are companies and individuals that will take your bulky rubbish way. Some are established outfits, whilst others fit more into the old “rag and bone man” image. As the value of scrap metal is rising, they'll be especially interested in old white goods. You may be able to get these taken away free of charge. If you use one of these companies it's important to check that they have a “waste carriers licence” and that you are given a “waste transfer note” to prove that you've disposed of your waste responsibly and not given it to someone who's going to fly-tip.

Retailers

If you're buying a new fridge or washing machine many retailers will offer to take away the old one, often free of charge.

Make sure you avoid this new PPI trap

Chris Torney, personal finance editor at the Daily Express, warns victims of loan insurance mis-selling to beware losing more cash to a new rip-off.

Are you one of the four million people in line for a share of a multi-billion pound compensation fund after being mis-sold loan insurance?

Earlier this month, Britain’s biggest banks admitted defeat in their bid to block wholesale refunds of premiums after being found guilty of a series of rip-off sales practices designed to part loan and credit card borrowers from even more of their cash.

How the scandal happened

Over the past decade, hardly a single loan has been agreed without bank workers trying to add a payment protection insurance (PPI) to the package.

PPI was supposed to help borrowers meet their repayments if they lost their jobs or became too ill to work. But in reality it was expensive and in many cases almost impossible to make a successful claim on due to sneaky small print clauses.

Sales staff were found to have hidden the fact that PPI was included with the loans, or to have misleadingly indicated to customers that the cover was compulsory and that their credit application would be turned down without it.

Now the whole sorry saga has been exposed, lenders are expected to face a bill of more than £5 billion to settle huge numbers of claims: that works out at an average of more than £1,000 per customer.

Avoid another trap

So if you are in line to get your money back, let me ask you a question: how much would you like to pay to make your claim for compensation?

Here are the options:

a) £300

b) £1.23

It’s not a tough decision, is it? Yet this is the choice presented to thousands of consumers by the claims management companies that are aggressively marketing their dubious services at those who have lost out in the PPI scandal.

If you decide to sign up with one of these no-win, no-fee companies – the same firms that are causing car insurance premiums to rocket with their ambulance-chasing antics – you can expect them to keep as much as 30 per cent of any refund.

On an average £1,000 claim, that would work out as £300: nice work if you can get it.

The simple DIY approach

But why anyone who is capable of writing a letter and sealing an envelope would want to pay through the nose like this to a claims manager is beyond me.

Making your own application for compensation is simple.

1) Download or copy a template letter from a website such as Which?.

2) Tailor the letter to your own circumstances, including the reasons why you think you were mis-sold PPI.

3) Print it out and send it to your lender – use the Post Office’s recorded delivery service so you know it’s been safely received. That will set you back £1.23, including your stamp.

The bank has eight weeks to get back to you with an offer of compensation or the reasons for rejecting your claim. If you don’t hear anything, or aren’t happy with the response you get, you can take your case to the Financial Ombudsman Service at no extra cost. 

Would you rather save a fiver or an hour?

Michael Heppell, author of 'How to save an hour every day guaranteed' tells Confused.com readers how to save time and money.

Ask most people what they would like more of and I’d bet you’ll get time and money at the top of their list. Interestingly, those who are good with their money tend to be good with their time too - and vice versa.

As a coach, author and professional speaker I pride myself on cutting through the clutter and getting to what’s important. It’s the same when I’m blogging so here are seven ways to save time and money without (too much) pain.

Read below to find out how:

 
 

1)   Stop writing to-do Lists and instead write a not-to-do list. Put on it the things which cost you time and money:from watching second-rate TV to buying sandwiches from the overpriced shop: create a not-to-do list and stick with it.

2)   Make frugal fun. There’s a feeling that when you’re cutting back it has to equal pain. That’s not necessarily so. Here’s a challenge:  see if you can only eat food from your freezer, fridge and cupboards for a week. You’ll end up with some interesting combinations by day five, but you save a fortune.

3)   Learn how to say no nicely. If you want to save time then learning this skill is a must. The best way is to have a few tricks up your sleeve. Instead of saying ”I can’t” change it to “I’m unable”, and find some reasons why you have to turn down the offer. It might sound like this: “Thank you for asking, I’m unable to accept right now as I’m really focused on (insert project, family time, etc) and I need to put my energy there. Thanks for asking though.”
The more you practice the easier it gets.

4)   Only carry £1. My friend did this when he needed to save some money quickly. He left his credit cards and money clip at home and simply took a one pound coin each day. He did this for three months and in that time estimated that there was only one time when he really wished he had his credit card. He saved hundreds.

5)   Get rid of the clutter. Everyone knows that clutter slows you down so here’s an extra tip to help you to keep your desk clutter-free.

Step one: have a big clear up. File it, fling it or flip It. Once your desk is clear take everything off it, keyboards, phone etc, and buff the surface with a good quality furniture polish. Psychologically it’s harder to clutter a polished desk than a dirty one. Only replace the most essential items: leave your lucky mascot and old pens in a drawer.

6)   Audit yourself. When I coach people I always ask them to carry out a financial audit to find out how much they owe and own, and their commitments versus income. Even if the results are negative it’s better to know. Get your head out of the sand and take some action.

7)   Know what you want to do with your extra hour. I’m currently running a campaign to save the people of Britain a million hours in May and to do something positive with it.

Set yourself some simple goals, write them down and keep them close at hand. These goals will motivate you, give you focus and keep you on track. Your share of those million hours is within your reach.

So there you have it: a few simple but effective ways to save time and money. For more ideas and to receive a 90-day free personal development programme visit www.michaelheppell.com.

Finally just knowing what to do isn’t enough. You may have just read my tips and thought, “I know that”. If that’s you can I ask: “Do you do it?”

The secret isn’t in the knowing, it’s in the doing, so take one or two of the ideas and test them right now.

Here’s to you saving time and money every day.

Michael’s new book, How to Save an Hour Every Day is available at Waterstones and launched as ‘Book of the Week’ at WH Smith travel stores. It is also available online at Amazon. For more information visit his website.

Why pension changes mean you should start saving now

By Chris Torney

Daily Express personal finance editor and Confused.com writer, says why you should start saving for a pension now.

Big changes to pensions are afoot. The government has just announced its intention to proceed with plans to pay a universal state pension, possibly of £140 a week.

Almost simultaneously, Lord Hutton published his report into pensions in the public sector, recommending that the likes of policemen and teachers should not only retire later, but also contribute more of their salaries towards funding their pensions.

Clearly, public sector workers are unlikely to be happy with Hutton’s proposals – and ministers face a bitter struggle with the unions if they attempt to impose these reforms.

But the plans make sense to anyone who understands how rising life expectancy has added hugely to the cost of guaranteeing the income provided by final-salary pensions.

The move to a flat-rate state pension should be much more widely welcomed, however.

At the moment, the state pension system is a bewildering mish-mash of National Insurance contributions, extra payments (in the form of the State Second Pension), and means-testing.

And it’s the last of these – the means-testing that is required to qualify for pension credit – which is the most damaging.

As things stand, any pensioners whose total income – from state and private pensions, as well as from savings or other investments – falls below a certain threshold can apply for a weekly pension credit top-up.

But there are two issues with this: firstly, many people find the means-testing process very intrusive (although it could be argued that this is how it needs to be).

The second problem, on the other hand, is much more damaging.

Essentially, the pension credit system is sending a message that for those who are, say, 10 or 15 years from retirement but don’t have much in the way of pension savings, there is not much point in starting to put money aside.

That’s because any extra income that a small pension pot generated would simply reduce the individual’s entitlement to pension credit. So the money they saved up could end up making them no better off.

Pension credit acts as a disincentive to save for thousands of people who could potentially put together modest, but useful, retirement pots.

The scheme is well intentioned, and goes a long way to helping many older people get by. But replacing it with a universal payment that can cover reasonable living expenses overcome the drawbacks I’ve mentioned.

It’s not yet known exactly when the flat-rate pension will be introduced – 2015 is the consensus view at the moment – but it now seems certain to arrive at some point.

So if you’ve been putting off setting up a pension because you weren’t sure it would be worth it, the message is now clear: get saving.

Are airlines wrong to charge admin fees?

By Chris Torney

Personal finance editor of The Express, and freelancer for Confused.com Chris Torney comments on the fight over airline administration fees.

A bit of a spat broke out recently between budget airline Ryanair and Which?, the consumer group.

Which? has submitted a formal “super complaint” to the Office of Fair Trading about the surcharges imposed by various companies and organisations when customers pay with credit and debit cards.
(Certain consumer charities and campaign groups are allowed to make super complaints: the OFT is obliged to investigate them and report back within 90 days.)

Some councils, for example, charge card-payers a 3 per cent fee when they settle parking fines, while travel firms routinely charge even more for customers who pay with plastic. Even the DVLA gets in on the act: there’s a £2.50 flat fee for buying tax discs by credit card.

Ryanair was named by Which? as one of the worst offenders – it charges £5 per person per journey as an “administration fee” for holidaymakers who pay with their bank’s credit or debit card. A family of four, therefore, would have to pay an extra £40 for a return trip.

But Ryanair spokesman Stephen McNamara, a man who rarely minces his words, told reporters Which? did not know what it was talking about, and added: “Before making ‘Super Duper Complaints’ the clueless clowns at ‘Which, Who or What’ magazine, should conduct some basic research. Ryanair does not levy any credit or debit card payment ‘surcharges’.” Charming stuff.

McNamara’s contention is that the fees are to cover administrative costs, such as running the website, as well as dealing with transactions. He also pointed out that the £5-per-trip charge could be avoided by paying with a pre-paid Mastercard – a kind of pay-as-you-go credit card that can be set up for an initial fee of as little as £4.95.

Clearly, from a consumer’s point of view, these charges are not ideal. But is anyone surprised any more at the array of extra fees – for baggage, checking in, printing boarding passes, and so on – that so many “low-cost” airlines charge?

If you didn’t already realise, then let me make it clear: for the majority of travellers, the ticket “price” quoted on a newspaper advert or at the start of the booking process is likely to be some distance from what you actually end up paying.

The OFT may well uphold Which?’s complaint and outlaw these administration or payment fees. But it’s hard to escape the suspicion that, were Ryanair and its ilk to be banned from imposing these particular surcharges, they’d just put costs up elsewhere.

I can see the logic in stopping councils or bodies like the DVLA imposing the fees, as in these cases it’s not possible for individuals to take their business elsewhere. But when it comes to airlines, the market is pretty competitive: if you don’t like the way Ryanair or easyJet operate, you don’t have to fly with them.

The best solution is for consumers to get clued up about when they’ll face extra fees, and work out how to avoid them. That’s likely to be much more effective than waiting for watchdogs like Which? and the OFT to sort things out for you.

• Do you think the low-cost airlines’ charges are fair? What are your tips for saving money on flights? Let us know by adding your comment below… 

Money Advice Trust’s 10 tips for dealing with debt

Joanna Elson OBE, chief executive of charity Money Advice Trust, explains how you can soften the blow of excessive spending over the Christmas period.
So Christmas is done for another year, decorations packed up, drinks cabinets dry and family and friends headed home – time to survey the damage.

December can be an expensive month, and certainly one we should budget carefully for. The reality is that some will have found it difficult to stick to their budgets and others won’t budget at all – preferring to wait until January before facing their finances.

The Money Advice Trust runs National Debtline, and each year we see a significant jump in the number of calls between December and January. A good number of those calling at the start of the year are concerned they have built up too much debt over the Christmas period, or indeed over the entirety of the previous year. Other debt advice agencies report similar experiences.

While everyone’s circumstances are unique, there are a few things you can do to help deal with your debt. With this in mind we have developed 10 tips for people with debt concerns at the start of the New Year:

1. Don’t ignore the problem – the sooner you get advice about your debts, the easier it will be to deal with the situation.

2. Get some free advice – think carefully before going to a fee-charging adviser when free, independent help is available.

3. Don’t borrow money to pay off your debts without thinking carefully – always take advice before making this step.

4. If you have lost your job, or are off work because of illness, check whether your payments are covered by payment protection insurance – and always read the small print of these policies.

5. Check that you are claiming all the benefits you can – go to direct.gov.uk and look at the money, tax and benefits section. Also visit turn2us.org.uk – a charity dedicated to helping you claim everything you are eligible for.

6. Work out a budget to help decide how much you can put towards repaying debts – a money adviser can help construct a budget, or you can visit a site such as mymoneysteps.org.

7. Decide on your best option for dealing with your debts – a money adviser can identify the range of options you have and their various implications.

8. Make sure you tackle priority debts first – some debts are more important than others – for example if you fall behind on mortgage payments you could lose your home.

9. Take action – after you have decided your route back to financial health, don’t delay.

10. Remember, you don’t have to struggle on your own – free, independent advice is available from a range of charitable organisations. You can contact your local Citizens Advice Bureau, call National Debtline on 0808 808 400, or go online and visit mymoneysteps.org.

Recent research suggested that 2.3 million UK adults were still paying off credit card debts from last Christmas, demonstrating why it is so vital to pay attention to our ten tips above. You don’t wanting to be paying for this year’s presents when the tree goes up again for 2011, so make sure you take action now to reduce your debt burden.