TMCnet News
Unearthing the 'ping tree' that feeds on the poorest Patrick Collinson: On reflection(Guardian (UK) Via Acquire Media NewsEdge) The more you dig into the payday loan industry, the muckier it gets. While researching a story on the brokers squeezing poor households for barely legal fees (on top of the absurd interest rates) what has repelled me most is finding out about the "ping tree". It is an anodyne phrase, made up by software developers, but behind it lies systematic exploitation of the poorest people that is quite breathtakingly rapacious and amoral. It works like this. Let's say John is broke and desperate for cash. He has probably taken payday loans in the past. He taps "instant cash" or "loan now" into Google. Up pop scores of adverts, all offering "money paid to you" in a matter of minutes. But what John doesn't know, as he fills in his details online, is that the site is just a lead generator for other lenders. Now the "ping tree" begins. John's details are instantly pinged over to the real lenders. The first bite goes to those that have agreed to pay the most commission to the broker, often as much as pounds 75. But maybe these lenders don't bite (perhaps they already have loans out to John) so his details are then passed down the tree, to others prepared to pay, say pounds 25, for John's application. If none of them take him, the lead generator sells it on to the buyers at the bottom of the tree - another bunch of "brokers". These charge a fee to John, of around pounds 50-pounds 75, even if they don't find him a loan. They then sell on his bank details to as many as 200 other sites. The "ping tree" turns the meaning of "brokerage" on its head. Broking is a business where the agent is supposed to try to find you the best deal. Instead, the lead generator brokers shove you over to the highest commission payer, likely to be the very worst deal in the market. The likes of uSwitch and Confused have come in for stick, but they are paragons of virtue compared to this mob. I'm told by one of the biggest payday lenders that nearly half of all the loans granted come through loan introducers. So we are talking about hundreds of thousands, if not millions, of individuals. What's more, some of the "brokers" are just fronts for lenders. The "deal" they find after "searching the market" is always the same. Stella Creasy, who has admirably campaigned against these companies, calls payday loan sites the "velociraptors" of the financial services world. She has been instrumental in forcing lenders to scale back their use of "continuous payment authority", the crucial weapon payday merchants use to raid accounts. Once you have given over your bank details and signed the "terms and conditions" they are free to bombard the person's bank account with demands for payment - often 10 or 20 times a day. These are always first thing in the morning to capture money as it comes into the account from other sources, such as welfare benefit payments. Payday lenders are supposed to keep CPA requests to a maximum of two a day, although it's evident from my research this week that some brokers are flouting this rule. Why don't the banks just cut them off at source? It's an obvious question, but like the "ping tree", when you delve into the payments system what emerges is a very complex picture. Your bank does not contract directly with a firm trying to take payment from you. The payday lender or broker does a deal with a "merchant acquirer" such as WorldPay or Barclaycard. They then funnel the request for payment through Visa or Mastercard, which pass it on to your bank. NatWest is asking the likes of WorldPay to blacklist the worst brokers, but they then simply go overseas and find another merchant acquirer. There is a simple way to blow this industry apart. Make it illegal to charge more than 100% APR interest rates, and the entire business model collapses. Until the government (astonishingly Labour rejected calls for rate caps) impose caps, this most ugly of industries will continue to thrive. [email protected] Captions: Campaigning: Stella Creasy (c) 2014 Guardian Newspapers Limited. |