Money: Non-bank lenders charging massive rates of interest on the rise - - PressFrom - Australia
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MoneyNon-bank lenders charging massive rates of interest on the rise

10:51  12 june  2019
10:51  12 june  2019 Source:   msn.com

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Non - bank lenders are still particularly vulnerable to a rise in defaults because they tend to issue mortgages to people who have lower credit scores than In some cases the interest rates charged by these lenders are extraordinary, and the practices of the debt collectors they work with are often

When Ben Anderson was unable to find a bank willing to give him a business loan, he turned to a non - bank lender . It was not long before debt collectors were knocking on his door.

Non-bank lenders charging massive rates of interest on the rise© ABC News Images Ben Anderson says his dog died after debt collectors visited his home.

Tougher lending standards imposed by the big banks since the banking royal commission have opened the door for non-bank lenders to grab a bigger slice of the market.

In some cases the interest rates charged by these lenders are extraordinary, and the practices of the debt collectors they work with are often unscrupulous.

One business owner who took out a loan at a massive rate of interest was targeted by debt collectors and lost his dog.

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There are many other types of interest rates and loan products. When it comes to setting rates , certain loans, such as residential home mortgage loans, may not be based on the prime rate The key rate is the specific interest rate that determines bank lending rates and the cost of credit for borrowers.

Ben Anderson, 45, poured his heart and soul into his small designer furniture business in South Yarra, Melbourne, but found he could not meet the overheads at his showroom.

Unable to find a bank willing to give him a loan, and desperate to keep his business from going under, he turned to an unregulated non-bank lender that charged 60 per cent interest. Initially he was paying a so-called discount rate of 30 per cent.

"It is very difficult for small business to get assistance through the big banks, and I think that's why maybe people tend to go for these types of loans," Mr Anderson told 7.30.

"There wasn't much of an option."

'I don't know what happened to Frankie'

Just before Christmas 2016, Mr Anderson signed on the dotted line to borrow $60,000 from First Mortgage Capital.

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Non - bank lenders have expanded to the point where they now account for half the mortgages originated That’s because traditional banks often sell the mortgages they originate on the secondary market. "These non-qualifying mortgage products typically come with higher interest rates , while

Thus, interest protects against future rises in inflation. A lender such as a bank uses the interest to The interest rate for each different type of loan, however, depends on the credit risk, time, tax An interest rate ceiling is defined as the maximum interest rate that a lending institution can charge

Not only did First Mortgage Capital charge exorbitant interest, it listed the principal amount of the loan as $83,854, with loan processing fees, research and management fees totalling thousands of dollars.

Mr Anderson's debt quickly spiralled, and First Mortgage Capital called in debt collectors who twice tried to take possession of his apartment.

The second time the debt collectors came to his apartment was in January 2018.

He told 7.30 he rushed home to find the debt collectors had removed panels from the wall of his apartment and removalists had shifted some of his furniture.

Worst of all, he said, they had called dog catchers to come and collect his beloved French bulldog Frankie.

"Removalists were trying to take my belongings and Frankie wasn't there, Frankie was nowhere to be seen," Mr Anderson said.

Hours later he heard from a nurse at a veterinary clinic several suburbs away.

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The interest rate is the amount a lender charges for the use of assets expressed as a percentage of the principal. The interest is charged monthly on the principal including accrued interest from the previous months. When the central bank sets interest rates at a high level the cost of debt rises .

Non - bank lending companies like Quicken Loans, PennyMac and LoanDepot could cause a financial crisis if the Federal Reserve doesn't regulate them He needs to crack down on these non - bank lenders with firm enforcement, not higher interest rates , which will just push any troubled lenders

"I got told that Frankie didn't make it, and I said, 'What do you mean she didn't make it, what are you talking about?' And then she says, 'Oh, she arrived deceased'.

"I said, 'What do you mean deceased? I left Frankie at home this morning, there is nothing wrong with my dog, what do you mean? I don't understand.'"

The Anderson family still does not know how Frankie died. Mr Anderson said he cannot bring himself to get another dog.

"To this day I don't know what happened to Frankie," he said.

"And probably that's part of why it hurts quite a bit, is I don't know the real story.

"So it is a very sad situation that I struggle getting through every day.

"I feel quite paralysed by the situation in a lot of ways."

'There needs to be greater regulation'

Non-bank lenders charging massive rates of interest on the rise© ABC News Images Gerard Brody from the Consumer Action Law Centre.

Mr Anderson turned to financial counsellor Maria Turnbull for help.

"To break into someone's house and hurt animals is just horrendous," Ms Turnbull said.

"To be able to invade a person's privacy and property the way they did, has got to be held to account. It's disgusting, heartbreaking."

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While banks always raise mortgage rates immediately, rises in savings rates tend to come later. But some lenders have already said they will pass Newcastle building society added it will pass on the rate rise in full to all its savers. But bear in mind that banks are generally not chasing after savers’

Non - banks have competitive advantages and disadvantages vis-a-vis licensed deposit-takers. With the Reserve Bank acting as a lender of last resort and the availability of government guarantees These relatively robust features are why rating agencies assign the safest RMBS and ABS tranches

Late last year, Mr Anderson signed a settlement deed with First Mortgage Capital and paid them $85,000, a sum that was $25,000 more than he had borrowed in the first place.

First Mortgage Capital has not answered questions from 7.30 despite repeated requests, while the debt collectors could not be contacted.

Ms Turnbull said high interest rate loans like Mr Anderson's were increasingly common.

"Unregulated lenders are gaining a foothold, and they're relentless in their practice, and their contracts are unconscionable," Ms Turnbull told 7.30.

Consumer Action Law Centre chief executive Gerard Brody said business borrowers could not rely on consumer protections when things went wrong.

"There is a growth of lenders specialising in small business lending, and many of them are now operating online, some of them at very high interest rates," he said.

"There does seem to be growth in this area, and I think it's a problem if our regulatory regime doesn't capture them in the way it captures other lenders."

Mr Anderson's family wrote to the banking royal commission about his loan and the actions of the debt collectors.

But Mr Brody said debt collectors were not covered by commissioner Kenneth Hayne, and the commission recommended very few changes to business lending rules.

"It was disappointing [the banking royal commission] didn't make recommendations about small business lending," Mr Brody said.

"There does need to be greater regulation on these second and third-tier lenders that focus on small businesses."

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