GE Money refuses mortgages to payday loan borrowers | London ...

Mortgage lender GE Money says it will not lend to applicants who have taken out a payday loan during the previous three months, even if they have paid it back on time and without problem.

GE, a sub-prime lender which specialises in lending to people with tarnished credit records, will also reject those who have taken out two or more loans over the course of the previous year, but outside the previous three months.

In a statement, it said: ?As a responsible lender in a challenging market, we review a range of data to make prudent mortgage lending decisions. Payday loan data is one of many items included in this review, and if a mortgage applicant has a current, or had a recent, payday loan, it is unlikely that we will consider their mortgage application.?

The lender started requesting information from credit reference agency Experian about whether applicants had borrowed payday loans in May in response to the steep rise in the number of such loans taken out. A spokesman for the company said it regarded the use of such loans as ?indicative of financial stress?.

Payday lenders ? a term used for a wide range of short-term, high-cost lenders regardless of whether repayment of loans is linked to a borrower?s payday ? have been accused of inappropriate lending to people on low incomes who are often only taking out payday loans because of financial distress.

They charge extremely high rates of interest ? Wonga, the highest profile short-term lender, charges 4,215% APR ? and allow borrowers to roll over loans from one month to the next, meaning the interest charges can eventually exceed the amount originally borrowed. Labour MP Stella Creasy has described payday lenders as ?legal loan sharks?. The industry is under scrutiny by the Office of Fair Trading and faces a tightening of regulation.

Russell Hamblin-Boone, spokesman for the Finance and Leasing Association, which has Wonga as its only payday lender member, said the government had been clear that one of the changes it wanted was for payday lenders to share more data: the idea is that the more lenders know about applicants, the less inappropriate borrowing they would do.

But he added that GE Money?s stance could be counterproductive, particularly if it was adopted by mainstream mortgage lenders, by deterring payday lenders from sharing information about borrowers. ?It?s stigmatisation of individuals on the basis that they have chosen an alternative to the high-street banks,? he said.

Mainstream lenders, including the Nationwide, HSBC and the Halifax, denied they will reject potential mortgage borrowers on the grounds that they had taken out payday loans. An HSBC spokesmansaid: ?It doesn?t make any difference to us. If you?ve got outstanding debt it will reduce the amount you can borrow, but that goes for any kind of borrowing. We don?t make a special case of payday loans.?

However, mortgage brokers posting underneath an article on the website Mortgage Strategy reported that they have had clients rejected by mainstream banks, including the Nationwide.

One posted: ?I obtained a successful decision in principle for a client with Nationwide and submitted a full application. But when the underwriter looked at the case he declined it, leaving both myself and the client very angry and frustrated!! The client had had a number of payday loans, but they had all been repaid within 21 days (or less) of taking them out.?

Nationwide said payday loans may have been a contributing fact in rejecting the applicant, but it would not have been the only reason for refusing him a loan. ?If they had more than one, we?d look at it manually, but as long as they?ve had no problems we would still lend to them,? a spokeswoman said.

John Lamidey of the Consumer Finance Association, which represents several payday lenders, said: ?It will frighten consumers because they will end up thinking that having a good repayment record will not help them.?

Source: http://www.londonmediaclub.org/ge-money-refuses-mortgages-to-payday-loan-borrowers.html

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