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Banking to the Sub-Prime Borrower |
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The following is an adaptation of an article appearing in http://www.theherald.co.uk on 22nd April, 2006.
High-street banks were yesterday branded legal loan sharks for charging some borrowers extortionate interest rates through subsidiary companies. A new report shows people on low incomes and those with poor credit histories face interest charges as much as seven times higher than lenders typical annual percentage rate (APR). Lloyds TSB, Citibank and HSBC were accused of being the worse culprits.
According to the report, high-street banks and other mainstream lenders are developing highly sophisticated lending practices in an effort to take advantage of the lucrative market for so-called sub prime borrowers. Subsidiary companies are used to sell loans, credit cards and mortgages to those with poor credit histories, low incomes or limited assets at rates far higher than those offered by the mainstream brand.
Citibank advertises a typical APR of 7.9% on a £1000 loan over three years. But its Citibank Financial brand, which targets the sub prime market, offers an APR of up to 45.2%. Lloyds TSB advertises a typical APR of 6.4% on loans above £7500, while its subsidiary firm Black Horse Finance offers an APR of up to 44.9%.
The report was commissioned by the SNP, which is calling for Holyrood to be given more powers to regulate Scotlands lending industry. Kenny MacAskill, the SNPs shadow justice minister, claimed the practices of some lenders bordered on legalised robbery. He said: It has traditionally been the money lenders that preyed on the poor and financially vulnerable in our communities. Now, though, we find that mainstream lenders are getting in on the act as well and acting as legal loan sharks.
Mr. MacAskill added: The Scottish Parliament has no control over consumer lending and the recent Consumer Credit Act from Westminster failed to tackle predatory lending practices. Powers over consumer lending must be devolved to Scotland in order to tackle this problem effectively.
However, the banks defended their rates. A spokesman for Lloyds TSB said Black Horse allows people who could not access so-called high-street finance to borrow from a reputable lender and help their credit rating.
He said: Black Horse offer loans with typical rates as low as 6.6% APR. The rate quoted by the SNP is the highest rate Black Horse would ever offer and would apply to customers with a badly damaged credit rating.
HSBC said interest rates reflected the risk of lending to people with credit problems and that the industry was already heavily regulated in this area. Citibank also said its rates were based on a persons credit record ad their repayments in the past.
The banking code is to be amended to forbid banks from pushing loans and credit cards to one borrower on the basis of a joint income with a spouse or partner who may be unaware of the loan. It will also outlaw the practice of offering new credit on cards to over-indebted borrowers who have just paid off debts with a consolidation loan.
For this and other news items please visit www.debtscotland.com . By registering on the site you will find a host of debt recovery and credit control tools in the free credit resources section.
Stephen Cowan
Yuill & Kyle, debt recovery & credit control lawyers, Scotland
79 West Regent Street, Glasgow G2 2AR
scowan@yuill-kyle.co.uk
Direct Dial: 0141-572-4251
www.debtscotland.com
www.ykcreditcheck.co.uk
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