print logo
  • Username:  

Revealed: extortionate loans for the poor

 The Bureau of Investigative Journalism 17 June 2019

Lenders who charge extortionate interest rates of more than 4000 percent to people struggling financially are making vast profits during the UK’s economic crisis. The investigation was carried out by the Bureau of Investigative Journalism (aka the Bureau), a not-for-profit media group in London, UK. The Bureau’s research into payday loan companies reveals that high street banks have invested heavily in the industry. US companies, some banned by law from issuing payday loans in America, are also investing in Britain’s less regulated market, as have international businessmen including some from eastern Europe, a South African mining company president, and US venture capitalist Don Valentine – who made his name funding Apple, Google and YouTube. (4300 Words) - By Jason Lewis


TBIJ_Revealed extortionate loans for the poor 1

High street banks have lent to payday loan companies.Photo: Flickr/Thomas190 (Creative Commons)

TBIJ_Revealed extortionate loans for the poor 2

Bundles of cash are being lent to consumers with poor credit ratings.Photo: Flickr/Images of Money (Creative Commons)

Britain's top dozen high cost lenders - some charging interest rates of more than 4,000% - made almost £1bn in the last 12 months, the Bureau of Investigative Journalism can reveal.

The figure is more than four times greater than the turnover of the entire industry assessed just three years ago.

Half of the biggest high-risk loan companies in the Bureau's research also posted profit margins of more than 30%.

This massive growth in an industry that is largely made up of controversial payday loan companies, has taken place despite Britain suffering a double-dip recession, and against the background of falling wages and a squeeze on more mainstream borrowing.

The Bureau's investigation into these lenders analysed the accounts of companies that offer debt to customers with low credit ratings, and charge high interest rates in the process.

Many of the companies in the research offer payday loans, a term used to refer to a short-term, high-cost loan, regardless of whether the payment is linked to a borrower's payday. Some of these companies charge interest that is equivalent to 4,000% annually, on loans intended to last a few weeks or months. Other companies provide loans, some more long-term, with interest rates above 50%, considerably higher than conventional mortgages, overdraft facilities and even credit card companies.

Competition Commission

The disclosures come as the UK's Office of Fair Trading (OFT) is due to decide whether it will refer the payday loans industry to the Competition Commission for a market investigation into alleged restrictive business practices.

The OFT is also waiting for responses to a series of letters sent to the leading firms questioning how they are run.

The government watchdog's review of the industry has already led to three companies having their licenses to issue loans revoked and another three placed under formal investigation.

Earlier this year UK prime minister David Cameron rejected calls for a cap on the interest rates the firms can charge borrowers. He told the House of Commons: 'The most important thing to do… is to welcome what the Office of Fair Trading is doing, which is putting those companies on notice… without an effective regulated sector, there are far more dangers from loan sharks.'

Now, research by the Bureau shows how payday loans firms and other high-risk lenders, have enjoyed a period of rapid expansion funded by loans from high street banks and huge investment from foreign firms, mostly in the US where, unlike in Britain, payday loans are heavily regulated.

The Bureau's analysis of the industry' top 50 firms reveals that:

  • Leading firms are boasting profit margins over 30%.

  • At least seven leading firms saw their revenues treble in the last year.

  • Six firms made operating profits of more than £10m.

  • One loan company director earned a salary of £1.6m and four more were paid between £200,000 and £800,000 a year.

  • Shareholders in one firm received a £5.3m dividend.

  • Small loan company bosses are becoming overnight millionaires, in one case transforming a former guesthouse owner into a gentleman farmer.

The total turnover of the firms we examined was £1.4bn compared to £242m in 2009, when the industry was analysed in detail by the government agency the National Consumer Council.

Leading company posted profits of more than £63m while three others made more than £30m operating profits: Instant Cash Loans, MEM Consumer Finance ltd and Amigo Loans.

"Recommendation after recommendation and review after review has uncovered a systematic failing in this industry, which continues to claim it can sort itself out."

Stella Creasy British MP

Seven companies more than tripled their revenue in the past year:, Lending Stream, TxtLoan, CFO Lending, The Loan Store, First and Goal Ltd and SDM Corporation.

And six companies in the top ten made pre-tax profits of more than £10m and profit margins based on their operating profits of more than 30%. These include WageDayAdvance, which was bought by a US-based company in February and made £16.4m pretax profits on £34m turnover.

Systematic failings

Labour MP Stella Creasy, who has campaigned to limit the interest that firms can charge, said: 'Recommendation after recommendation and review after review has uncovered a systematic failing in this industry, which continues to claim it can sort itself out.

'Those struggling with the debts they are causing know otherwise - they desperately need the government to do the right thing and cap the total cost of credit that can be charged in the UK to give British consumers the protection that they deserve from these problems - and that others around the world enjoy.'

The huge expansion in the industry is demonstrated by the growth of medium-sized firm CFO Lending, which published its accounts at Companies House.

The firm, which charges 4,414% APR interest on loans and is run by Essex property developer James Keeble, has seen its turnover increase from £790,000 in 2009 to £19.6m for the year ending August 2012 - a 24-fold increase.

Other foreign-owned firms posted huge increases in turnover but made losses after paying fees due to their parent company.

One of the biggest firms in the market, Lending Stream, had an income of almost £33m, up from £10m a year earlier, but made a loss of £3.6m after paying more than £36m in administrative expenses.

According to its accounts, its only employees are two foreign-based directors, but it faced huge costs, including paying £5.3m in royalties to its US parent Global Analytics Inc, based in California.

Payday loans have come under heavy attack by consumer groups including the Citizens Advice Bureau. Such groups draw on research into the industry showing the difficulty many people have repaying their loans.

Research by R3, the insolvency practitioner, shows that more than 5m adults were considering taking out a payday loan in the first six months of this year. It also revealed that millions of people - 13% of the population - prioritised paying back the loans over buying food, clothes or paying their heating bills.

Consumer research group, Which?, also revealed that a third of payday loans were simply taken out to pay off another payday loan.

Well rewarded

The growth in the industry has rewarded investors and directors well. Many of the chief executives of the companies analysed by the Bureau are earning six-figure salaries. The highest paid director at earned £1.6m in 2010, according to company accounts.

Dale Chapman and his father, founders of Wage Day Advance, received a share of a dividend of £5.3m according to a note in the accounts, as well as a pay-out after selling the company to US-owned Speedy Cash Holdings in February. Mr Chapman's father, Paul bought a farm in Harrogate, west Yorkshire in the run-up to the sale.


The money pouring into a boom for consumer loans

By Jason Lewis

The rapid growth of the high-cost consumer credit industry has attracted considerable investment despite criticism of the huge interest rates charged by many companies.

The Bureau's investigation into the sector, which includes many payday loan companies, reveals that Britain's high street banks have put millions of pounds into the industry. US companies, some banned by law from issuing payday loans in the American states where they are based, are also investing in the UK's less regulated market. Many have bought up UK companies, paying the UK founders millions of pounds for their shareholdings.

Criticism of the industry has focused on the level of interest charged, with some loans costing up to 4,474% in interest. The government has rejected calls to cap the interest rates the firms can charge, claiming it would force people to turn to illegal loan sharks.

Instead the Office of Fair Trading (OFT) is attempting to crack down on the industry, threatening to remove firms' licences if they fail to check whether customers can afford the loans or use aggressive debt collection tactics. The OFT has already removed three licences.

Buying in

Despite this new attempt at regulation, international businessmen including some from eastern Europe, a South African mining company president and US venture capitalist Don Valentine - who made his name funding Apple, Google and YouTube - have bought into the industry.

Many of the companies in the Bureau's research offer payday loans, a term referring to a short-term, high-cost loan, regardless of whether the payment is linked to a borrower's payday. These companies charge over 4,000% interest rates. Other companies provide loans, some more long-term, with interest rates above 50% - considerably higher than conventional mortgages, overdraft facilities and even credit cards.

Among those who have invested is the Arbuthnot Bank Group run by chief executive Henry Angest, a Swiss-born millionaire, and a major Conservative Party donor.

Angest now controls Everyday Loans Limited, which offers the 'financial freedom' of unsecured loans of between £500 and £10,000 at 74.8%. This is not a short term payday loan company, but has rates of interest higher than other more traditional consumer loans such as credit cards.

US companies, some banned by law from issuing payday loans in the American States where they are based, are also investing in the UK's less regulated market.

A former Conservative party treasurer, Angest has contributed £7m to the party in loans and donations.

Last year Everyday Loans was purchased by an Arbuthnot group subsidiary, Secure Trust Bank, which is investing millions of pounds to fund new lending.

Arbuthnot Latham, a private bank, in which Angest owns a majority stake, and which is also part of the Arbuthnot group, has offered a £5m loan to the Conservative Party at 3.5% interest. The loan is listed on the official Electoral Commission register but a Conservative Party spokesman described it as a 'credit facility' which the Party had not drawn upon.

A spokesman for Everyday Loans claimed the company was a responsible lender. He said the firm does not provide 'payday loans' nor is it a 'short-term lender'.

He said customers had to borrow over a minimum of 13 months and added: 'Everyday Loans provides loans to customers who are underserved by the high street banks. If Everyday Loans did not provide this service those looking for loans would have to approach payday loan companies, pawnbrokers or home collected credit companies where interest rates would be very much higher.'

He said: 'We are not engaged or plan to engage in payday lending. The interest rate charged on [our] loans reflects the risks involved in lending to the individual borrowers. The rates we charge are typically 3 times less than the representative rates of lenders like the home collected credit companies and 20 times less than payday lenders.'

Asked whether the firm or its chairman and chief executive Henry Angest had discussed the company's business with the prime minster or the government, the spokesman added: 'We can confirm that we have not discussed the business of Everyday Loans Limited with either the Conservative Party, the current government or civil servants.'

Angest is the second leading Conservative donor with a connection to a high-risk lending company. Adrian Beecroft runs Dawn Capital Investments, a private investors fund, which has a major stake in Wonga, one of Britain's best-known and fastest growing payday lenders.

Beecroft, who is also a government adviser, has given almost £800,000 to the Conservatives since 2006, most recently contributing more than £100,000 last December. Wonga's turnover has trebled to almost £185m the last year.

Research by the Bureau also shows that these high-cost lending companies are often heavily reliant on the leading high street banks for funding and set up costs.

Despite widespread criticism that the major banks are reluctant to lend to small businesses and entrepreneurs planning start-ups, payday lenders have found them willing partners.

One major payday firm, US-based Lending Stream, describes Barclays Bank, which currently lends to businesses at 5.1% APR, as a major 'strategic partner'.

3,378% interest rate

The firm, owned by Delaware-registered Global Analytics Holdings Inc, had a £32.7m turnover in 2011 with 142,000 British customers borrowing £31.2m. Its customers pay 3,378% APR to borrow from it.

The firm's Californian-based boss Krishna Gopinathan claims he founded the firm to 'give back' and to 'empower' people with low access to credit.

How much Barclays lends the firm is not disclosed, but it has a fixed charge over the company's deposits providing, according to Lending Stream, 'integrated banking solutions … lending, risk management, trade, cash and liquidity management, and specialist asset and sales financing'.

Barclays, which at one stage sought a taxpayer-funded government bail out before instead reaching a deal with Middle East investors, is also involved with several other high-cost lenders.

Barclays Capital, its investment arm, lent £75m to Everyday Loans Limited according to its filings to Companies House to provide 'funding for the provision of consumer finance lending to customers', until this was paid off when the firm was bought out last year.

According to documents filed at Companies House the bank also has a charge over credit balances facility for TxTLoan Limited, a firm offering 4,474% interest loans through mobile text messaging.

Barclays was keen to stress that it no longer lends to payday loan companies. A spokeswoman for Barclays Bank said: 'We do not lend to any of these companies.'

Other major banks are also involved in funding the industry. HSBC provided seed capital for Money in Advance Limited, a firm registered in the British Virgin Islands, the offshore tax haven, which explains, for example, that it will loan customers £250 for 22 days and collect £305 - an interest rate of 3,697% APR.

Taxpayer-owned Royal Bank of Scotland (RBS), which was bailed out after the financial collapse in 2008 with £45bn from the government, is another that has invested in the high-cost credit sector.

RBS funds Amigo Loans Limited, owned by entrepreneur James Benamor, who is paid £890,000 a year. His firm, which says it has now stopped doing payday loans, was until recently lending at 199% APR. The Bureau has included the company in its data as the financial records cover the period when it was still operating as a payday lender.

Before the bail-out the bank, through subsidiary NatWest, helped Nottingham city jeweller Henry Hallam build up his Money Shop business before he sold out to US-giant Dollar Finance in a deal in 1999.

Its website advertised: 'Borrow £400 for 31 days, pay £400 interest'.

Taxpayer-owned Royal Bank of Scotland, which was bailed out after the financial collapse in 2008 with £45bn from the government, is another that has invested heavily in the payday business.

At the end of last year it replaced these with new longer term 'guarantor loans… Based on how much your friends trust you, NOT your credit score', it says. These loans charge 49.9% APR in interest.

Lloyds TSB, which took £5.5bn from the taxpayer to save it from collapse, is another high-street name involved in funding the payday market.

The bank helped fund Instant Cash Loans Limited, owners of the Money Shop.

Investment in the industry is flowing in from the US too. The Bureau's research highlights the growing involvement of US firms in the British payday industry at a time when such companies are facing tighter regulation of their activities at home.

Rapid growth

Dollar Finance has overseen the massive growth of the Money Shop taking it from a company with 34 staff and a turnover of £2.9m in 1998 to one with 2,300 staff and an income of £172.3m today.

The success of its Money Shop stores has made Dollar Finance, which is owned by Philadelphia-based DFC Global Corporation, keen to expand.

In 2009 it acquired Express Finance (Bromley) from Michael Thorpe who, before the buy-out, had employed his 25-year-old son and his wife to help run the business, for almost £5m. In the three years after the takeover the company's revenues increased tenfold to £51.7m and it is making profits of almost £17m a year.

In April 2011 Dollar Finance expanded further, buying internet loans business MEM Consumer Finance, which trades as PaydayUK and issued £30m worth of loans last year.

Expansion of the payday loans industry in the US has been curtailed by a growing clampdown on high interest rates by state governments. Some states have even banned payday loans.

In 13 states the loans are either illegal or, while not explicitly banned, prohibited by strict usury limits - hard interest rate caps on the annual percentage rate.

Since 2007 a federal law has also capped lending to military personnel at a maximum of 36%.

Dollar Finance is based in Pennsylvania, where state laws cap interest rates on short term loans at 30% compared to the 2,949% APR offered on its PayDayUK website this week.

In 13 states the loans are either illegal or, while not explicitly banned, prohibited by strict usury limits - hard interest rate caps on the annual percentage rate.

Cash Choice UK Limited is another firm owned in a US state where its interest rates, advertised on its website as 3,491% APR, would be outlawed.

The firm is owned by US citizen David Vickers, president of Cash Choice Inc, based in Atlanta, Georgia, where payday loans have been banned for more than 100 years.

A statement on the Georgia governor's website says: 'Payday loans have become a multibillion dollar industry in recent years. Nevertheless, it is illegal in Georgia to make a payday loan.

'(The) law authorizes felony and racketeering charges against violators, as well as fines of up to $25,000 per violation and a possible jail sentence of 25 years.'

The risks of similar legislation in Britain are reflected in the annual report of Texas-based Cash America International Inc, owners of one of the biggest UK payday lending firms. CashEuroNetUK, which trades as QuickQuid and Pounds To Pocket, and advertises interest rates of 1,734% APR.

In Texas the state senate has been pushing for new laws that would put limits on payday and short-term loan firms charging interest rates of 1,000%.

The latest proposal would limit customers to one payday loan at a time. The size of the loans would also be limited by their monthly income and the loan could only be renewed four times.

With the UK operation generating revenues of £198m, Cash America warned its shareholders: 'If prescriptive regulations are adopted  (in the UK) the Company's compliance costs will be significantly increased'.

RBS and Lloyds did not respond to the Bureau's questions.

Copy changed after publication to include a response from Barclays bank.


Making money: Profiting from high-interest loans

By Jason Lewis

CashEuroNet UK LLC

Trading as Pounds to Pocket and QuickQuid, the US-based firm is one of the biggest players in the UK payday loans market. It began trading in 2007.

It is registered in Delaware, the tiny state known as the 'brass plate capital', where US firms can take advantage of low taxes and laws protecting shareholders.

In the UK its only presence are two addresses registered with the Office of Fair Trading (OFT) belonging to a City of London lawyer and secretarial service firm in Green Lanes, north London.

The firm has announced it is closing its UK branch and instead will trade from the US. It is owned by Cash America Net Holdings, based in Chicago.

Founded in Irving, Texas in 1983, starting with a single pawnshop, the chain grew through rapid acquisitions and was listed on the New York Stock Exchange in 1990.

The company's annual report for 2012 shows its UK operations now generate turnover of £198m of its £1.2bn annual revenue.

The report describes the firm's 'core purpose' as providing 'financial solutions that help ordinary people meet their needs and pursue their dreams'.

It says it offers 'reliable assistance when, often, our customers have nowhere else to turn.'

Advertising on television in the UK, Pounds to Pocket charges interest of 278% APR. On its website it says: 'Borrow £500 and pay £79.09 per month for 12 months at a fixed interest rate of 140% per year.  The total charge for credit is £449.01 (all interest). The Total Repayable is £949.01.'

In his report to shareholders in April the firm's president wrote: 'The recent review of the payday lending industry in the UK by Britain's Office of Fair Trading have captured most of the headlines and analysts' attention in 2012. The most frustrating part of the process is the uncertainties it creates…

'I wish I could provide you with granular clarity on how these federal agencies might impact our business, but to do so would only be speculation at this point…

'Fortunately, many legislators today take heed of the growing library of independent research documenting the lack of credit in the underbanked community and the dangers associated with restricting product design via legislation.'

Israeli businessman Errol Damelin and South African Jonty Hurwitz set up the firm in 2007.

Hurwitz is an expert in 'control theory' and helped design a mathematical model to allow the firm to issue the maximum number of loans in the shortest time possible at the minimum risk.

Wonga sees itself as a technology company rather than a finance firm, with Damelin's ambition for it to be 'world class…like Facebook, Amazon and Apple'.

It quickly went from issuing £3.2m worth of loans in 2008 to issuing £246m loans last year, advertising interest rates of 4,214% APR.

In 2010 an unnamed director earned £1.6m.

Instant Cash Loans Ltd, MEM and Express Finance Bromley (owned by Dollar Finance)

Nottingham jeweller Henry Hallam set up Instant Cash Loans, which trades as the Money Shop, with one shop in the city centre in 1992.

By the time he sold up to US loans giant Dollar Finance in 1999 he had opened branches in Bristol, Newcastle, Sheffield, Coventry, Cardiff, Birmingham, Sunderland, Hull, Southampton and Bolton.

At the time Hallam said: 'By buying us they have established a bridgehead in the UK.'

That 'bridgehead' has seen the firm expand rapidly, going from 34 employees in 1998 to 2,339 in 2012.The company is now generating revenue of £172.3m a year and profits of £34.4m. It offers cheque cashing, pawnbroking and foreign currency as well as loans.

Dollar Finance also owns MEM Consumer Finance, which trades as PaydayUK and offers online short-term loans at 2,949.1% APR.

Started by Oxfordshire businessman Iain McKenzie in August 2003, its first year saw a turnover of just £110,181 and an operating loss of £47,867. Its four staff earned £71,226 between them.

Backed by loans from the Bank of Scotland and Barclays to cover further lending, the firm rapidly expanded. By 2010, in the run-up to the sale to Dollar Finance, turnover was up to £60m, and it employed 232 staff.

Dollar Finance has continued to expand the company's operations and it now employs 285 staff and had a turnover of more than £123m last year.

It is currently advertising a £275 loan over 28 days. The total amount repayable is £357.36 - an interest rate of 2,949.1% APR.

Express Finance Bromley was set up in 2000 by Michael Thorpe, aged 65, from Bromley, with a loan from Barclays Bank. Thorpe sold his stake in the firm to Dollar Finance in 2009 and the US firm began a rapid expansion.

Daryl Thorpe remained a director of the firm until last year. He is now running a new payday firm, Money in Advance, which has South African mining company president Greg Kinross as a director.

Amigo Loans (previously Financial Processing UK Ltd)

Owned by entrepreneur James Benamor who started his loan brokerage company, the Richmond Group, in 1999, at the age of 21.

Unable to afford advertising at the time, he says he printed leaflets and hand-delivered 30,000 in the first month.

His firm says it has abandoned 'payday loans', which it previously issued at 199% APR. At the end of last year it replaced these with new longer-term 'guarantor loans'. These are 'based on how much your friends trust you, NOT your credit score', it said.

Amigo Loans, advertised on daytime television by men in sombreros, now only lends for a minimum of a year. It says: 'Borrowing £5,000 over 60 months, repaying £197.62 per month, total repayable £11,857.20.' That is £6,857.20 in interest over the five-year loan.

Last year the firm had a £50m turnover.

Wage Day Advance Limited

After leaving school in 1989, Dale Chapman started as an apprentice fitter at a local bus company, but quickly realised working for someone else was not for him.

He opened a shop selling secondhand furniture and progressed to becoming one of the UK's youngest pawnbrokers before starting his loans firm in 2001.

Now 32, he sold the firm to US loan company Speedy Cash Holdings in February.

Claiming to be one of the UK's fastest growing payday lenders, its website says: 'Make any day your Payday' and reveals that borrowing £225 for 28 days would cost £66.38 in interest, the equivalent of 2,814.2% APR.

It claims it is now processing over 800,000 loan applications a month.

Although the purchase price has not been revealed, company disclosures in New York showed the American buyers raised $100m (£64m) to fund the acquisition and future loans to customers.

In the run up to the sale, Chapman and his wife Kim bought a property in Harrogate, paying £1.75m in cash according to planning records.

They appear to have immediately upset their new neighbours with plans for a car port and garage which were said to be an 'over development' of 'listed' buildings. A second application to convert a barn and connect it to the house was rejected and plans to extend the access road to the house drew concern from the local Ramblers and Bridleways Associations.

At the same time, Chapman's father Paul, 63, another shareholder, bought a farm in Harrogate for £2.15 million, according to Land Registry documents. He moved in after selling the family home in Keithley, West Yorkshire, which had been run as guesthouse.


NOTES TO EDITORS - Please accredit TBIJ and retain hyperlinks to the Bureau's website. Many thanks for your co-operation.

SNS logo
  • Website Design