# 1295% APR ! Elevate Credit calls its customers in the US and the UK the “New Middle Class”,



## Black_Adder (19 Jan 2016)

Read this and weep. APR of 1295% (ONE HUNDRED times that of a Credit Union statutory maximum).

http://ftalphaville.ft.com/2016/01/...nder-routes-loans-through-the-cayman-islands/

If you think we do not need Credit Unions then explain the above.

If you think availability is less important than price then explain the above.

If you think Credit Unions should therefore insist on 3 pay slips, your current account statement, your mortgage statements, your ID - after you have paid them on many previous loans before they give you a loan, then look forward to the likes of Elevate.


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## Brendan Burgess (26 Jan 2016)

Hi Black Adder

What is the true APR charged to a customer who has a loan of €5k at 9% while he has shares of €10k earning a dividend of 1%? 

Brendan


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## Gerry Canning (26 Jan 2016)

Brendan/Black-Adder,

If you need to borrow @1295% = you are in trouble so don,t increase that trouble for a quick fix.

If you have k10 in Credit Union , why borrow K5 .

Black -adder , sadly we have boyos like Elevate  giving expensive funds to those who are vulnerable.
I think Provident have already been sanctioned previously ?


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## Black_Adder (26 Jan 2016)

What the Elevate structure shows is that it is 'availability' of funds not price is the issue. And there is an enormous cost that people pay for that.
When people have no where to turn to- this is what they do the world over. Why are we dismantling a structure when it was not this type of lending that created difficulties for the minority CUs that went into trouble.
The red herring about the shares is security aspect otherwise its unsecured and there is a cap on CUs at 12.9% APR.


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## Brendan Burgess (26 Jan 2016)

Hi Gerry

I raise the borrowing money while having shares exceeding the amount, because it's a common practice and it's encouraged by the credit unions. It's an outrageous practice.  The APR is presumably infinity? Much higher than the 1,295% rate at any rate. 

But Black Adder raises an interesting question.  Why does the Central Bank apply such strict lending criteria to Credit Unions for making small loans?  I suppose it's because they have learned not to trust the Credit Unions and because the CB has no sense of materiality.

Brendan


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## Gerry Canning (26 Jan 2016)

The Central Bank should get their snout out of small C U loans , otherwise Elevate/Provident can feed off those who shouldn,t borrow , but if they do borrow  the locality and ethos and control of CU can help them.

For the Central Bank not to trust Cu ,s is at best , a bit rich ! was it not Banks under Central Bank ,not CU,s that failed ?
I am inclined to think why do the CU,s give credence to Central Bank .


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## Black_Adder (26 Jan 2016)

Brendan's point on deposit is red herring. For if CUs could do secured lending it would be a different matter.
The point is availability of finance to those that wont qualify on the basis of the extensive checks of 'you will be able to borrow if you don't need it' rules will drive the people will less income into these type of Elevate structure. 
[The same applies to 20% deposit on mortgages - so lets stick to 'availability']


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## Andy836 (26 Jan 2016)

Brendan Burgess said:


> Hi Gerry
> 
> I raise the borrowing money while having shares exceeding the amount, because it's a common practice and it's encouraged by the credit unions. It's an outrageous practice.  The APR is presumably infinity? Much higher than the 1,295% rate at any rate.
> 
> ...



I'd imagine it's because credit unions are funded by guaranteed consumer deposits while Specialty Credit providers like Elevate are funded by investors.


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## Black_Adder (26 Jan 2016)

The same applies to all the Banks. 
One of the issues with micro-credit is the costs. The reason Elevate were looking to use Cayman Islands structure is that there is virtual invisibility of just how much they will actually make. These offshore structures are delightfully too complicated to get unpicked. There is brass in muck as it were.
Meanwhile the low-cost vehicle on the doorstep is being fed slow drip arsenic by the CBI. Death will come eventually.


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## Brendan Burgess (27 Jan 2016)

Black_Adder said:


> Meanwhile the low-cost vehicle on the doorstep is being fed slow drip arsenic by the CBI. Death will come eventually.



Their model is simply bust. 

Even if the CBI adopted a balanced supervisory approach to them, they would not survive. 

Or they would survive only by taking deposits from people and lending them back their own money.  

Or by taking deposits from members and putting those deposits in a bank. They destroy value. 

There isn't much demand from reasonably credit-worthy borrowers for small amounts.  And the credit worthy ones can get loans from the banks. 

Sure the Credit Unions compare well to the money lenders, but the losses on these loans would be huge. 

Brendan


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## Black_Adder (27 Jan 2016)

With the greatest respect - nonsense / lack of evidence / lack of research / peddling myths.


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## Protocol (27 Jan 2016)

I suggest making any APR above 12.68% illegal.

Payday lending, etc. is terrible, a step backwards.


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## Gerry Canning (27 Jan 2016)

Brendan Burgess said:


> Their model is simply bust.
> 
> Even if the CBI adopted a balanced supervisory approach to them, they would not survive.
> 
> ...


Cu,s  model was in the time frame of the crisis thought to be bust  on arrears and yet their model survives.
The same can,t be said of finance houses/banks.
Small amounts, if repaid end up neither profitable or un profitable.
Factor in the (value) and ongoing business worth within the CU ethos and I expect Cu,s to outsee Banks ,who as we speak are finding newer ways, such as PCP car loans to sucker more debt on people. 
I await the next Bank blow outs !


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## thedaddyman (28 Jan 2016)

Brendan Burgess said:


> There isn't much demand from reasonably credit-worthy borrowers for small amounts.  And the credit worthy ones can get loans from the banks.
> 
> Sure the Credit Unions compare well to the money lenders, but the losses on these loans would be huge.
> 
> Brendan



With all due respect, what an absolute load of rubbish. As someone who is both a member of and who sits on some of the committees on my local CU in rural Ireland, what we are seeing is a rise in demand for small to medium loans from prudent credit worthy individuals who are deliberately bypassing their banks because they no longer trust them and because of the sheer lack of service their local banks deliver. It's also been driven by banks closing branches in rural towns. Not easy to do your banking online if you don't even get decent broadband, your local banks is 20 miles away and the local CU is often the only alternative

Well run CU's are profitable and stable. Badly run CUs, especially those that got involved in Celtic Tiger property style lending are in difficulty but to write off the entire model on that basis is tosh.


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## Black_Adder (28 Jan 2016)

thedaddyman - I would agree with you.
I would add that the number of CU that are 'badly' run in the eyes of CBI is through the flawed metric of the 'Regulatory Reserve Ratio' so the number are not that great.
I think the 'challenged middle class' are not familiar to BB and nor are they to CBI.
The CU movement though needs to radically alter its lobby groups - I think ILCU and CUDA days are over.


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## 24601 (28 Jan 2016)

Brendan Burgess said:


> Their model is simply bust.
> 
> Even if the CBI adopted a balanced supervisory approach to them, they would not survive.
> 
> ...



It's wrong to say the model is bust. It could certainly do with further consolidation in my view but bust it ain't. Take the Health Services CU (admittedly one of the best performing CUs) and you'll see where sustainability can lie. Their 2014/15 accounts are available *here*.

Their loan book stands at around €112.5m with total assets of €211.6m - in the current environment, with such low demand for consumer credit, a 53% loan to assets ratio is pretty healthy. 

They also granted 58.5m over the financial year, up over 9m on 2013/14, and of those loans just 16% were of the type you bemoan as lending people back their own money. 

They offer members plenty of choice in terms of products with mortgages now available up to €150,000. If they could perform a bit better in terms of cost control they would probably be the model for a CU given the current regulatory limitations. Their online and mobile offering is also decent. 

That said they're the exception, not the rule and have the advantage of an industrial common bond (and the associated credit concentration risk), but if the sector could get back to an average of 40-50% loan to assets and became trimmer it would be well placed to develop the model and offer more wideranging financial products to a wide demographic.


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